UPDATE 1-Europe's shrinking banks still critical on global stage

LONDON/FRANKFURT, Nov 2 (Reuters) - European banks will dominate the group of lenders required to hold extra capital to protect the global financial system, despite moves to shrink their businesses in response to the region's debt crisis.

The Financial Stability Board, a taskforce for the world's 20 top economies (G20), on Thursday revised its list of ``systemically important'' banks considered so large and complex they need an extra buffer to absorb potential losses.

The FSB's aim is to ensure that these banks hold enough reserves so governments won't have to rescue them in future crises.

Sixteen of the banks are from Europe which accounts for about half of global banking assets. Eight are from the United States, and four are from Asia. The FSB will next update the list in November 2013.

Spain's BBVA and London-based Standard Chartered entered the list for the first time as a trio of European banks that have retreated to their domestic markets, Commerzbank, Lloyds and Dexia, dropped out.

Europe's debt crisis has resulted in a drop in the value of government bonds which are traditionally the ballast held by banks in the region. Spanish bonds have been particularly badly hit.

Banks across the region have been shrinking their balance sheets, such as by selling off risky assets, to raise their capital ratios without having to ask unwilling investors for money.

The FSB's capital surcharges, being phased in over three years from 2016, will come on top of the minimum requirement of 7 percent all banks must have under the global Basel III accord being phased in from January over six years.

Analysts said most banks already meet or exceed the requirements. `` Local rules, such as in Britain and Switzerland, already trump these. The Dutch and Swedish are also higher,'' one analyst said.

BBVA and Standard Chartered will be required to have a total core ratio of 8 percent, for example. The Spanish bank is already at 10.8 percent, while Standard Chartered hit 11.6 percent in June.

``It makes sense for us to be on the list because we are a true international institution,'' a BBVA spokesman said.

Standard Chartered had no comment.

Deutsche Bank signalled it was well prepared for the new rules after noting in September it would strive for a core ratio in excess of 10 percent by 2015.