UPDATE 1-EU bank watchdog sticks to capital target

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By Huw Jones and Steve Slater

LONDON, Oct 3 (Reuters) - The European Union's banking watchdog is sticking to a target for banks to raise more capital to help shield them from the euro zone debt crisis, despite pressure to ease it.

Dousing banks' hopes that the European Banking Authority would lessen its demands, the London-based regulator said on Wednesday that banks had to maintain a capital buffer equivalent to 9 percent of their risk-weighted assets indefinitely.

Some banks have complained that the capital requirement, combined with other regulatory restrictions imposed since the credit crisis, is preventing them from lending to companies and households, forcing them instead to pull back their loans.

The so-called core Tier I capital ratio is seen by markets as a key indicator of a bank's strength, most banks have seen this sapped by the credit crunch that started in 2007 and was closely followed by the euro zone debt crisis.

In its final report on the recapitalisation of 71 European banks, commonly known as "stress tests", the watchdog welcomed the fact that banks had raised 205 billion euros ($265.17 billion) in fresh capital in the year to June.

"European banks have made significant progress in boosting their capital positions and in strengthening the overall resilience of the European banking system," Andrea Enria, chairman of the EBA, said in a statement.

In January, new global rules enter into force, known as Basel III, that will require all banks to hold minimum core buffers of 7 percent.

Basel's much tighter definition of what can be included in the capital buffers means that some banks meeting the EBA's 9 percent target will still need to find more capital to meet these stricter rules being phased in over the next 6 years.

Twenty-seven European banks, which fell short of the minimum 9 percent capital level, raised 116 billion euros, the EBA said. The capital raised also included cash injected into troubled Greek banks and regional lender Bankia in Spain.

Banks which were not told they must find cash still strengthened their capital by 47 billion euros, the EBA said.

($1 = 0.7731 euros)

(Reporting by Huw Jones and Steve Slater, Writing by Douwe Miedema and Kirstin Ridley; Editing by Alexander Smith)

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