MercoPress. South Atlantic News Agency

Spain’s leading banker says “obligatory” recapitalization could further weaken banking system

Banco Santander SA Chairman Emilio Botin, time “to apply the breaks on more regulation”

Spain’s Banco Santander SA Chairman Emilio Botin warned of the risks of an “obligatory, indiscriminate” recapitalization of European banks without a final resolution of the sovereign debt crisis.

“Casting doubt in a general manner on the sustainability of public debt or of the European financial system may bring us to a ceaseless downward spiral of sovereign debt and banking crises” Botin said in statement based on a speech at the bank headquarter outside Madrid Tuesday. It’s time to “apply the brakes” on more regulation, he said.

Group of 20 finance ministers and central bankers have pressed European Union leaders to deliver a plan by the end of the week to avoid a Greek default and bolster Europe’s banks. While some lenders affected by the European sovereign debt crisis may need to raise capital, a forced recapitalization would create confusion and cause credit to shrink as lenders opt to reduce their balance sheets, Botin said.

Santander, which holds about 24 billion Euros of Spanish debt and more Uruguayan debt than Greek, said its retail-based banking model spread across 10 main markets means it’s less risky than lenders more reliant on investment banking.

“Retail banking is a key engine of economic growth,” Botin told the conference, whose delegates included Andrea Enria, chairman of the European Banking Authority, Jose Vinals, director of monetary and capital markets department at the International Monetary Fund, and Andrew Haldane, the Bank of England’s executive director for financial stability. The meeting was closed to the press and the public.

Steps have been taken to improve financial regulation that has helped boost capital and liquidity levels far higher than they were at the start of the crisis, Botin said. Efforts should be concentrated on enforcing steps already agreed rather than embarking on more regulation, he said.

“We cannot continue to have new burdens placed on the sector, such as new local taxes or requirements of various types,” said Botin.

Botin also said there is a “wide international disparity” in calculating so-called risk-weighted assets, which needs to be addressed to help discriminate between the levels of risk and financial strength of different banks.

This “causes harm to entities with large capital holdings and low-risk business models, such as Banco Santander among others,” Botin said.