EU economy commissioner cautious about "bad bank"

BRUSSELS, Jan. 27 (Chinese media) -- The European Union's

chief economy official said here on Tuesday that it was too soon to start work

on a "bad bank" to remove toxic assets and reactivate lending.

Joaquin Almunia, Economic and Monetary Policy

Commissioner, urged EU member states to coordinate at EU level on what the 'bad

assets' need to be dealt with and "what is the best way to value them" before

rushing into creating it.

"The recent announcement of huge losses by some

European banks has shown us that we are not out of the woods yet," Almunia told

af inancial services conference, referring to the financial crisis that has hit

hard the global economy.

"We are hearing widespread reports of businesses

being denied access to bank credit," he said, "Specific problems have been

identified in financing large-scale infrastructure projects and for financing

international trade."

He warned a breakdown in the credit market channel

could make the current economic "slowdown even deeper."

Several member states were now considering how to

solve the problem of toxic assets, which would continue to undermine confidence

and hamper leading so long as they have remained on bank's balance sheets, he

noted.

"Needless to say, this solution (of creating a bad

bank) is not free of problems and it is just one among several possible

avenues," Almunia said.

Britain proposed last week to create a 'bad bank' to

buy up the toxic assets to restore trust and kickstart lending.

"But I believe that before rushing into the 'bad

bank' debate we have to coordinate at EU level our views on first, what are the

'bad assets' that we need to deal with, second, what is the best way to value

them, and only then to address the issue of what is the best way to manage

them," said Almunia.

At the same time, he stressed "at this point that any

further aid to the banking sector must be based on the principle of

transparency".

"If governments are to continue putting taxpayers'

money into financial institutions, they must know from the outset the situation

of that institution: its exposure to various risks, the quality of its asset

portfolio and the sustainability of its business model in the long term," he

warned.

EU states have so far recapitalized 300 billion euros

in financial groups in an attempt to stabilize financial markets and help banks

lend.

Almunia said banks had to be open about the risks

they are holding if they are seeking any more government help.