Banks recapitalisation is a 'Necessary Evil': Strategist

Recapitalizing insolvent European banks such as Bankia is a "necessary evil", but some should still be allowed to fail, Sean Corrigan, chief investment strategist at Diapason Commodities Management, told CNBC.

Bankia, Spain`s fourth largest bank, requested a 19 billion euro (USD 24 billion) bailout from the Spanish government on Friday. The government is expected to recapitalize the troubled lender using Spanish sovereign bonds, which Bankia can then use as collateral in order to tap European Central Bank funds.

"I think the idea that we have to address bank insolvency is clearly the crux that should have been addressed years ago," Corrigan told CNBC`s "Squawk Box Europe" on Monday.
"If this is the start of the process, good, but we have to have failures in it as well. Europe is grossly overbanked," he said.
Corrigan added that recapitalizing Europe`s banking sector was vital to re-establish growth in the region.
"Four years after the crisis, we have finally realized some banks should fail, and a lot of them need rescuing. If we put the banking system back together on a properly capitalized basis, with failures included in that mix, then we can start the credit process, and the distribution of savings, and the formation of financial capital. Then we will get our growth in Europe," he said.
Last week, the Greek central bank confirmed the country`s four largest banks will receive an 18 billion euro (USD 22.6 billion) government bailout, allowing them to re-access ECB funds.
For an alternative view on Bankia`s recap, see here - By CNBC.com`s Katy Barnato

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