The directors of Dexia have warned that shutting down the Franco-Belgian lender too quickly could endanger the European financial system.
In a message to shareholders, Dexia’s board said that forcing the bank to rapidly sell off assets could crystalise losses it cannot afford to take.
Dexia said that if this were to happen it would likely default on its debt, which it said could cause a new European banking crisis.
“Such a default would jeopardise the stability of the whole European financial system. Indeed, a default of the Dexia group would lead to assets being frozen in the short term and would affect the liquidity of the markets, with a significant risk of a spill-over effect to the rest of the eurozone, given the size of the group’s balance sheet,” said the bank.
The warning came after Dexia this month received its third state bail-out in four years, taking the total amount of money spent rescuing the bank to nearly €15bn (£12bn).
France and Belgium have agreed to inject €5.5bn into Dexia in its latest bail-out after the bank reported a third-quarter loss of €1.23bn, which took it total losses for the year to €2.4bn.
The bank’s latest problems are largely the result of a loss it has taken on the sale of its Turkish subsidiary DenizBank.
However, the new warning about the impact its failure could have on the wider European financial system is based on its large holdings of assets, including sovereign debt, which, if sold off en masse, could lead to a sharp fall in asset prices.