Banks should grab hold of the state’s economic lifeline in order to ensure they make it through the recession, central bank governor urges

The nation’s banks stand a good chance of surviving the economic crisis if they tap into the capital made available by the second of parliament’s bank stability packages, according to Nationalbanken.

The central bank’s evaluation comes after its semi-annual stress test of the country’s 14 largest banks.

In the bank’s comment to the test, it noted that most large and medium-sized banks had indicated they would apply to receive part of the 100 billion kroner made available by the state to banks that satisfy certain conditions.

That was something Nils Bernstein, Nationalbanken’s governor, found ‘positive’, even though the economy is forecast to begin expanding again starting next year.

‘In an uncertain world, it is advantageous for banks to have a little extra padding,’ Bernstein said.

While the stress test found that banks could survive short-term losses, it revealed that if the current recession lasts past 2011 many would come into difficulties.

However, with the central bank calling for growth rates of 0.5 percent in 2010 and 1.5 percent in 2011, Bernstein said a prolonged recession was something it ‘did not see as likely’.

Nevertheless, he warned against banks relying solely on state capital to carry then through the economic crisis.

‘It’s important that banks realise that state capital and loan guarantees are temporary measures,’ he said.