(Reuters) - Regulators must ensure banks take account of the riskiness of government bonds they own, ECB governing council member Luc Coene said on Tuesday, adding to pressure on banks to set aside more capital to cover such losses.
Coene's comments came on the same day as the President of the European Council, Herman Van Rompuy, called for crisis measures, in an apparent hint to the European Central Bank to take further action to support struggling euro zone debtor states.
European banks are finding it increasingly difficult to borrow and having to turn in greater numbers to the European Central Bank for funding.
Bankers and economists believe that only a capital injection in the banks will regain lost confidence and stop a credit freeze. But demands on banks to set aside more capital contribute further to their reluctance to lend.
Around 70 European banks are already due to raise more than 100 billion euros ($135 billion) of fresh capital in a pan-European drive to bolster their finances by June next year.
One of the issues that we are now all acutely aware of as a result of the sovereign crisis is the fact that sovereign debt can no longer be considered to be a risk-free asset, Coene told a conference at Belgium's central bank.
It now becomes crucial for regulators to ensure that the credit risk of sovereign debt exposures is adequately recognised by banks, said Coene, who is also governor of Belgium's central bank.
The ECB is coming under pressure from France and others to step up its efforts to support countries by buying their bonds.
At a time of crisis, one must have the courage to take crisis measures, Van Rompuy told a reception of German officials. We cannot deal with a crisis by applying everyday methods alone.
This has been particularly true for the European Central Bank. Under the presidency of Jean Claude Trichet and now of Mario Draghi, it has had to work in an unfamiliar environment, in unexplored territory.
What the ECB did, had to be done to save the euro area as such, said Van Rompuy. This objective is the important thing. The means for achieving it are not an end in themselves. Let us not forget this in the upcoming weeks.