Banks’ capital needs could be greater than feared

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.