EU bank watchdog set to stick to capital target

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

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 EBA is unlikely to change tack.

EU banks were given until June to replenish their capital to give them a core capital "buffer" equivalent to 9 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 had hiked their combined capital by 94.4 billion euros ($122.11 billion). Seven banks had needed 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 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 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 banks needed extra capital totaling 59.3 billion euros to stabilize them.

The next EU bank stress test is not due until 2013, when a new law could be in place to 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.

The EBS's report is due at 1600 GMT.

(Reporting by Huw Jones. Editing by Jane Merriman)