ECB issues warning over 'second wave' of banking losses

1 June 2010

Banks in the eurozone face having to write off another €195 billion (£164 billion) in bad loans over the next 18 months, according to the European Central Bank (ECB).

The prediction has added to speculation that a fresh financial crisis is developing on the continent, where banks collectively hold bonds issued by eurozone nations which are worth billions of euros.

Amid growing doubts about the creditworthiness of Spain and Portugal, as well as the well-documented fiscal problems in Greece, the ECB's latest Financial Stability Review warned of further losses in 2010 and 2011.

The report said financial institutions were facing a "hazardous contagion" as market concerns over the sovereign debt crisis in Europe grow.

Eurozone banks have already written off €238 billion since the financial crisis began.

Last week, a report from the Royal Bank of Scotland urged the ECB to step up its bond purchases after revealing that more than €2 trillion of public and private debt from Greece, Spain and Portugal appears on the balance sheets of banks based outside those three nations.

By Asim Shah

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