Euro zone countries should not cut bank capital buffers and some should even increase them given record profits in the sector and clouds on the horizon, the European Central Bank said on Friday.
Lending has all but come to a halt in the euro zone for the past year as the ECB's high rates discouraged borrowers and lenders, helping to prick housing bubbles in richer countries such as Germany.
But the ECB said national authorities should keep buffers designed to help banks absorb losses, noting property remained overvalued and debt high in some countries.
"The Governing Council supports national authorities planning to increase capital buffer requirements," the ECB said in a statement.
It noted banks made record profits -- largely as a result of the record interest rate they have been earning on their deposits at the ECB -- and had ample room above their current capital requirements.
"A further build-up of releasable capital buffer requirements to address vulnerabilities and enhance macroprudential space remains desirable in some countries, as prevailing banking sector conditions limit the risks of procyclicality," the ECB said.
The Netherlands has the highest countercyclical capital buffer, designed to shield banks from losses in a downturn, at 2% of their assets. Germany and France have set it at 0.75% and 1% respectively.
The ECB also backed keeping curbs on mortgage lending, which stipulate for example how much a customer can borrow relative to their income or the value of the property.
(Reporting by Balazs Koranyi; editing by Mark Heinrich and Jane Merriman)
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