EU Banks Need Credible Refunding Mechanism: ECB’s Draghi

A credible mechanism is needed for recapitalizing euro zone banks and improving oversight in order to address the economic challenges facing the region, European Central Bank President Mario Draghi said on Thursday.

A key challenge is finding a way to limit contagion, Draghi told the European Parliament.

Draghi gave testimony to the parliament as the head of the recently created super-watchdog, the European Systemic Risk Board (ESRB).

Rising concerns that Spain, weighed down by a creaking banking system and mounting debt costs, may need a bailout have ushered in a dangerous new phase in the euro zone’s debt crisis.

The European Commission said on Wednesday it was ready to offer Spain direct aid to recapitalize its weak banks from the euro zone’s rescue fund, Reuters reported, Reuters reported.