NEW YORK, Oct 26 (Reuters) - Bank of Canada Governor Mark Carney said on Wednesday he was confident Europe would succeed in containing its debt crisis, but warned that euro zone banks will still face pressures that could be felt in Canada and the United States.
“Even with containment, there will be quite strong deleveraging pressures on the European banking system,” Carney said at the Economist’s Buttonwood conference in New York.
While capital injections into the banks would help, he said the pressure experienced by banks “will be felt in Canada, the U.S. and other markets.”
European Union leaders agreed to a plan Wednesday to boost a 440 billion euro ($600 billion) bailout fund by about fourfold.
While there is consensus on the need for European banks to raise around 110 billion euros in extra capital to withstand a potential Greek debt default and wider financial contagion, governments and banks are still haggling over the scale of write-offs private bondholders will have to take on their Greek debt holdings, sources said.
The Bank of Canada slashed its growth forecasts for the fourth quarter to just 0.8 percent annualized, from 2.9 percent. That is down from a likely 2 percent in the third quarter.
“We are expecting that the situation in Europe, the weakness in the United States will have an impact on confidence in Canada,” Carney said earlier in the day at a news conference.