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Recapitalizing Banks Won't Fix the Crisis: Analyst

Recapitalizing Europe’s banks will not solve the sovereign crisis, Otto Dichtl, director of financials at Knight Capital Group, told CNBC Wednesday.

Lack of capital is currently “not really a big issue” for European banks, as they had increased their capital bases over the last two years, Dichtl added.

“We have certain accounting standards and various regulatory standards that cover the banks. Applying all these properly, without any major issues, means the banks have a certain amount of capital,” he said. “Frankly, whether you move that up by half-a-percentage point, or 1 percentage point, it does not solve the sovereign crisis that is driving all these calls for capital increases.”

Now-nationalized Franco-Belgian bank Dexiahad suffered a liquidity crisis rather than a capital one, according to Dichtl.

“Dexia so far is not insolvent. The thing that triggered Dexiawas a liquidity shortfall. Always with banks, the big discrepancy is between liquidity funding on one hand, and capital solvency on the other,” he said.

But if banks were forced to mark their assets to market , their capital ratios could fall significantly, Dichtl warned.

“If you mark-to-market your assets, I guess you would also have to mark-to-market your liabilities. If you don’t do that, I think you would struggle to have a functioning banking system with anywhere near the types of capital ratios we are talking about at the moment,” he said.

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