Confirmation that risk remains in banking system even as banks show higher Tier I capital ratios

Bloomberg ran an article which confirms that while EU banks are taking significant steps to boost their Tier I capital ratio, the bad debt remains on their balance sheets.  Some of the bad debt is known, but like structured finance securities that are no longer marked to market, some of the bad debt is hidden.

Now why exactly should higher capital requirements cause the interbank loan market to unfreeze (every bank knows what it is hiding in the way of bad debt) or cause the unsecured bank debt market to unfreeze (investors still can't assess the risk of the banks because they do not have the information required to know what each bank's bad debt exposure is)?

European banks have almost doubled the amount of loans they are trying to sell to 2.5 trillion euros ($3.3 trillion) in the past year as they seek to cut balance sheets....

“Banks have continued to develop their deleverage strategies, and have become more transparent in communicating these to the market,” Richard Thompson, a partner at London- based PwC, said in today’s report. “Over the past year PwC has seen an increasing volume of non-core loan portfolio transactions, a trend that is expected to continue.” Last year the figure was estimated to be 1.3 trillion euros, PwC said. 

While the total amount of bad loans on European banks’ balance sheets has remained stable at about 518 billion euros in the past year, in countries such as Spain, Greece and Italy balances have been increasing, offsetting reductions in Germany and Ireland, PwC said.