Banks should be prepared for hard times: Trichet

WASHINGTON: Banks on both sides of the Atlantic must be better prepared for hard times, the head of the European Central Bank said Tuesday in the midst of renewed concerns about the health of Europe's financial houses.

Stressing the need for a "more solid" and "more resilient" banking sector Jean-Claude Trichet told US television station CNBC there was a need for capital to be "reinforced."

His comments, recorded at the weekend, were broadcast amid fears about the rigidity of recent European bank "stress tests" dominated global stock markets.

Market sentiment was ruffled by a report in the Wall Street Journal that "stress tests" carried out in July on European banks to assess their solvency "minimized their debt risks" and "understated some lenders' holdings on potentially risky government debt."

"An examination of the banks' disclosures indicates that some banks didn't provide as comprehensive a picture of their government-debt holdings as regulators claimed," the paper said, citing its own analysis.

That spooked stock markets, with the Dow Jones Industrial Average finishing down 107 points or just over one per cent for the day.

In London the FTSE 100 index shed over half a percentage point while in Paris the CAC 40 fell 1.1 per cent. The Frankfurt DAX lost 0.6 per cent and ended the day at 6,117.89 points.

Responding to a question about the strength of banks' capitalization Trichet responded: "You know that the stress tests have shown on both sides of the Atlantic, I would say that in the medium term perspective, it has to be reinforced."