Deleveraging by banks attempting to boost capital could put more pressure on sovereign debt or squeeze lending to the economy, according to a report prepared for European Union finance ministers who meet this week.
The report also outlined the objections of EU countries to schemes that would pool guarantees for banks, which means that they will now revert to issuing national guarantees for banks that struggle to borrow.
The document, written by senior officials from EU finance ministries to lay the ground for talks between ministers on Wednesday, underlines worries about deleveraging in an EU-wide drive to boost the capital of 70 banks in Europe by June 2012.
There are serious concerns about a possible inappropriate deleveraging by banks when implementing the measures that would prejudice an adequate supply of lending to the real economy or put excessive additional pressure on sovereign debt, officials write in the report seen by Reuters, reflecting concerns that were addressed at a meeting of ministers in early November.
It said that countries had opted for national guarantee schemes for banks, rather than any single pan-European support plan.
There is no full convergence of views on the degree of coordination among member states for the granting of guarantees, let alone mutualisation (burden-sharing of the losses), according to the document.
A majority of member states affirmed their preference for the setting-up of national, but closely coordinated, guarantee schemes, which is considered the only one that could be activated swiftly.
(Reporting By John O'Donnell)