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Banks are in a capital crunch again

European banks must raise 0bn this year to maintain capital buffers while Bank of America shares hit post-Lehman levels

Broken banks are a problem that affect all western nations. European banks must raise about 0bn this year to maintain and in some cases boost their capital buffers and many could struggle. Investors are less keen on banks than a year ago as profits slide and economies slip back into recession.

In the US, Bank of America has seen its share price sink back to post Lehman levels, turning a share before 2007 into less than a share. It may need to raise bn to bn to meet regulatory demands for higher capital now the mortgages on its books are clearly worth less than the bank says they are. German and French banks, despite their bluster, are in an equally parlous state. Banks are struggling to get credit insurance on dealmaking and many have withdrawn from interbank lending forums. These stroke-inducing levels of anxiety affecting the banks feel like a re-run of 2008.

Lars Frisell, the chief economist at Sweden’s central bank, said last week it wouldn’t “take much for the interbank market to collapse”, bringing a fresh credit crunch. Frisell is right to issue his warning, but as a member of the Basel Committee for Banking Supervision, which set the global targets for ridiculously high levels for bank capital, he should understand that he set the process in motion. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds