Europe Economy

No Relaxation of Bank Capital Targets: EU Watchdog

Reuters
WATCH LIVE

The European Union's banking watchdog will stick to a target for banks to raise more capital to help shield them from theeuro zone debt crisiswhen it publishes a new report on Wednesday.

Bank Vault Door
James Porter | Brand X Pictures | Getty Images

Banks have hoped that part of this capital buffer would be cut back, but with the euro zone crisis still creating volatility in markets, the European Banking Authority is unlikely to change tack.

EU banks were given until June to replenish their capital to give them a core capital "buffer" equivalent to nine percent of their risk-weighted assets. This so-called core Tier 1 capital ratio is seen by markets and regulators as a key indicator of a bank's strength.

The EBA said in July there were still big challenges ahead for Europe's banks, even though 27 of them hiked their combined capital by 94.4 billion euros ($122.11 billion). Seven banks required government help, while some of the other lenders were also excluded.

In January, new global rules enter into force, known as Basel III, that will require all banks to hold minimum core buffers of seven percent.

Basel's much tighter definition of what can be included in the capital buffers means that some banks meeting the EBA's nine percent target will still need to find more capital to meet these stricter rules being phased in over the next six years.

The watchdog said last week that Europe's top banks would have needed to find 199 billion euros of extra capital if Basel III had been fully in place at the end of last year.

Markets and regulators are piling pressure on banks to meet the new Basel rules sooner rather than later, as strains remain in some euro zone countries.

Last week, a stress test conducted by consulting firm Oliver Wyman found that 14 of Spain's banksneeded extra capital totalling 59.3 billion euros.

The next EU bank stress test is not due until 2013, when a new law could replace the EBA with the European Central Bank as the main supervisor for euro zone lenders. This would leave the EBA to focus on pan-EU rule making.