Posted on 26-07-2010

Now that most major European banks have sailed through their long-awaited "stress tests," they face a stiffer challenge in the months ahead: raising billions of dollars of long-term funding to finance new lending.

At stake may be Europe's tentative economic recovery. Unlike the situation in the U.S., a large majority of companies in Europe depend on banks for finance. Unless the banks can tempt investors in the bond markets, they won't be able to make long-term loans to allow businesses to finance investment.

Nonfinancial businesses in the euro area depend on bank credit for around 70% of their debt financing, whereas U.S. businesses do about 80% of their borrowing on capital markets, according to the European Central Bank.

 Until Friday's stress tests, which just seven of the European Union's 91 major banks failed, a growing number of banks struggled to access funding in wholesale markets. Instead, they flocked in record numbers to the European Central Bank to borrow funds to finance their day-to-day operations.

Source: The Wall Streeet Jounal     (  Read Article...)

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