12/07 EU Will Support Banks Failing Stress Tests

.  JULY 12, 2011, 1:04 P.M. 

By RIVA FROYMOVICH And MATTHEW DALTON

BRUSSELS—European Union governments committed at a meeting Tuesday to backstop banks that fail stress tests.

Ahead of the publication of financial-sector stress test results on Friday, officials said all vulnerable banks must recapitalize themselves, be recapitalized by their governments or restructure.

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• Heard on the Street: Spanish Banks More Vulnerable Than Italy's

"These measures privilege private-sector solutions but also include a solid framework for the provision of government support in case of need, in line with state aid rules," according to a statement from the economic bloc's 27 finance ministers...

At the meeting, ministers said their governments either have action plans ready or would have them in time for publication of the test results, said Polish Finance Minister Jacek Rostowski. However, he added: "It's not the case that everything has to be in place ... although in the majority of countries most things are in place."

Agence France-Presse/Getty Images

EU Commissioner for Economic and Monetary Affairs Olli Rehn, Polish Finance Minister Jacek Rostowski, and EU commissioner for Internal Market and Services Michel Barnier give a press conference after an Economy and Finance Council meeting.

The EU Commission's internal market commissioner also put rating agencies on warning in comments following the meeting, saying that a proposal to increase regulatory oversight would come this November.

"I want to have transparency concerning their methods, particularly when they're rating countries," said Commissioner Michel Barnier. "You don't rate a country the same way you rate a business or a product."

He questioned an agency's ability to downgrade countries in international programs, particularly when they have the support of other governments and institutions. The aim of the commission's proposal will be to reduce dependence on the rating agencies, said Mr. Barnier, and to force them to reveal their methods of evaluation.

Write to Riva Froymovich at riva.froymovich@dowjones.com and Matthew Dalton atMatthew.Dalton@dowjones.com