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Analysis: Europe to prescribe more merger medicine to banks

Sep 6, 2011, 5:57 a.m.
A trader looks at computer screens at Madrid's bourse, September 6, 2011. REUTERS/ Susana Vera

EFG Eurobank was one of only eight banks to flunk Europe's "stress tests" -- an annual health check -- and other banks that failed the test, or just scraped through, could face a similar fate, and be taken over.

Greece should also consider separating banks' non-performing loans from good assets into a bad bank, if its financial sector is not able to attract outside investors, a consultant with experience of bad banks said.

"What is likely to happen ... is a repeat of the Irish model. It's a process that should happen hand in hand with the stress tests, and which could help attract investment," said the consultant, who now advises banks.

Ireland's state-run bad bank, the National Asset Management Agency, is one of the world's largest property groups after bailing out banks of assets they were stuck with. Germany and the UK have set up bad banks on a smaller scale.

Such measures stop short of the 200 billion euros ($284 billion) mandatory recapitalization that International Monetary Fund head Christine Lagarde said Europe's banks needed last month, higher than official estimates.

Banks scorned the idea, with Deutsche Bank chief executive Josef Ackermann saying on Monday the idea would "threaten to send the signal that politics has lost faith in the ability of existing measures to succeed.

(Additional reporting by Sarah White and Kylie MacLellan; editing by Sophie Walker)

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