The ECB took some fairly bold steps to improve commercial banks’ liquidity last week. But given the growing likelihood of default by some euro-zone governments, fears about banks’ solvency have surged, prompting calls for capital injections of up to €200bn. Our calculations suggest that, in the event of widespread defaults, banks’ capital needs might be as much as double that amount. And while euro-zone policymakers are apparently considering recapitalising the region’s banks, there are uncertainties over where the money might come from.
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