Major European Union banks face a collective shortfall of 135 billion euros ($153 billion) to meet global capital requirements by 2027, meaning they may need use profits to raise their capital by at least 24.4%, the European Banking Authority said.
The EBA is finalising recommendations for the EU on meeting requirements for the Basel III accord, due to be fully implemented by 2027, two decades after the global financial crisis forced taxpayers to bail out many EU banks.
Basel III is an internationally agreed set of measures to strengthen regulation, supervision and risk management of banks.
Officials from the EBA, which in March said implementation would mean an average 19% increase in average core capital, or 24.2 billion euros, told a public hearing that the biggest of the 189 banks surveyed faced the bulk of the shortfall.
EBA said it now put the required capital increase at 24.4% with the inclusion of non-core "add on" capital requirements and the ending current EU capital exemptions. It said the figure could fall if Basel's recent amendments to capital rules for trading books were incorporated.
While the total capital shortfall is about 135 billion euros, almost entirely among larger banks, this would be reduced to 58.7 billion euros if banks were to retain profits throughout the transition period, rather than raising new capital.
The banks have several years to fill the gap and for half of them the average minimum capital increase would be far lower at around 10 percent, EBA officials said, adding that some banks might need to raise even less or could reduce their capital.
The Basel Committee on Banking Supervision, which drafted Basel III, and EU finance ministers have agreed it should not lead to a significant increase in overall capital requirements.
Bankers say an increase of about 20 percent counts as material, especially when lenders are under pressure from markets and investors to show they hold "management" capital buffers that put them well above the minimum requirements.
Gonzalo Gasos, head of banking supervision at the European Banking Federation, said the amount of capital European banks would need to raise would be higher in order to maintain these management buffers and avoid a drop in headline capital ratios.
He said banks might prove reluctant to retain profits if it undermined their ability to pay dividends in a depressed market for valuations. "Banks need reassurance that they will be able to keep on paying dividends to attract investors," he said.
The Basel Committee published its own figures in March on the impact of Basel III, showing big European banks faced a 17.4 percent increase in minimum capital, while their rivals in the United States faced a minor hit or could see capital fall.
European lenders would face a bigger challenge because European businesses tend to rely on bank loans. U.S. firms rely more on the stock and bond markets.