The International Monetary Fund estimated that European banks face a €200 billion capital shortfall, sparking a fierce response from officials in the euro zone. The IMF plans to publish its analysis, which could be revised, in its Global Financial Stability Report.
Investor confidence globally increased 8 points this month compared with November, according to the State Street Investor Confidence Index. However, concerns about the sovereign-debt crisis hindered investors' risk appetite in Europe. "The strong decline of European investors' confidence shows that the region's investors remain quite jittery in the face of intra-European turmoil," said Paul O'Connell of State Street Associates.
The European Central Bank reported an increase in lending to businesses in the euro zone in November. Analysts said private-sector credit trends are heading toward a recovery, albeit slowly. The situation is providing a small counter to the much larger sovereign-debt issues plaguing the region.
Yves Mersch, a member of the European Central Bank Governing Council, said proposals to bolster penalties for debt-ridden euro-zone nations need to go further. "Recent European proposals on euro-zone economic governance are a step in the right direction, but are not ambitious enough to ensure healthy and effective functioning of the monetary union," wrote Mersch, who is also governor of the Bank of Luxembourg.
Japan's Mizuho Financial Group likely would have to raise capital after the implementation of Basel III regulations, analysts said. The proposals, published in December by the Basel Committee on Banking Supervision, would oblige banks to hold more core Tier 1 capital. "Following the fundraising of Mitsubishi UFJ [Financial Group] and [Sumitomo Mitsui Financial Group], Mizuho is in a very weak position, especially in terms core Tier 1 capital," said Royal Bank of Scotland credit analyst Kristine Li.