Bernanke says Europe must aid banks even as strains eased

Facing Challenges

New York Fed President William C. Dudley, who is also vice- chairman of the FOMC, said this week the world’s largest economy still faces challenges.

“The incoming data on the U.S. economy has been a bit more upbeat of late, suggesting that the recovery may be getting better established,” Dudley said in a March 19 speech. “But, while these developments are certainly encouraging, it is far too soon to conclude that we are out of the woods in terms of generating a strong, sustainable recovery.”

European markets have stabilized on speculation that government leaders are containing the region’s debt crisis. The Stoxx Europe 600 Index has rallied 25 percent since Sept. 22, when it closed at a two-year low. The rate that London-based banks say they pay for three-month loans in dollars was 0.474 percent yesterday. Libor, a gauge of banks’ reluctance to lend, is down from a 30-month high of 0.583 on Jan 3.

Crisis Easing

Bernanke said that the calming of Europe’s crisis has led to “an improved tone of financial markets around the world.”

The 58-year-old Fed chairman said that most of the largest U.S. banks could maintain adequate capital in the event of a sharp downturn in Europe and a new recession in the U.S., referring to a round of so-called stress tests completed last week.

Fifteen of 19 banks would be able to maintain capital levels above a regulatory minimum in an “extremely adverse” economic scenario, even while continuing to pay dividends and repurchasing stock, the Fed said last week.

Bloomberg News

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