EU Officials: Banks May Get Up to 6 Months to Shore Up Balance Sheets

Weak European banks may get up to six months to bolster their balance sheets after a fresh round of stricter stress tests force them to face up to a fall in the value of sovereign bonds, EU officials said on Thursday.

This timeline, which is being suggested by European officials as part of a push to help lenders, will ultimately need the approval of governments, many of whom are nervous the bill for helping banks will again land with them.

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"A three- to six-month deadline is being considered," said one EU official, speaking on condition of anonymity. "No decision has been taken."

The officials said banks should first turn to private investors rather than governments to improve the capital cushion used to cover losses on loans, signalling that they needed time to do this.

"The timeline is very important," said one. "The current market circumstances are not ideal. At the same time, we need to (regain) confidence as soon as possible.

The new round of stress tests, designed to rebuild shaken confidence in Europe's banks, will temporarily impose a higher capital hurdle to see them through the immediate crisis.

The new standard is likely to be a 9 percent core tier 1 ratio, a key measure of a bank's financial health, based on a tighter definition of capital than used now, although not as strict as that under new Basel III rules when in full force.

One of the officials said the authorities had not yet calculated the amount of extra capital needed, but added that banks found to be short faced curbs on the payment of dividends and bonuses until their capital was raised to the appropriate amount.

The executive European Commission wants EU leaders to back the proposal when they meet on Oct. 23, leaving it to the European Banking Authority and national bank watchdogs to enforce the bonus curbs.