Top EU banks have Basel capital shortfall of 70 billion euros
The top 42 banks in the European Union would need an extra 70.4 billion euros ($95 billion) of capital to comply with new rules that take full effect in 2019, the bloc's banking watchdog said on Wednesday.
Markets and regulators have been putting pressure on banks to move early to comply with the new global Basel III accord being phased in, to dispel any doubts about their ability to thrive and encourage investors to buy their bonds and shares.
The European Banking Authority (EBA) published its latest update, estimating that by the end of 2012 the 42 banks' capital shortfall had been cut by 29.1 billion euros compared with six months before that when it released its previous report.
Basel roughly triples how much capital banks must hold compared with before the 2007-09 financial crisis when many undercapitalised lenders had to be rescued by taxpayers.
It requires banks to have a core capital buffer equivalent to at least 7 percent of their assets on a risk-weighted basis by January 2019.
Under Basel III, banks must also have separate buffers of cash and government debt by 2019, known as a liquidity coverage ratio, to survive market shocks of up to a month unaided.
The rules apply to all banks, but they are mainly aimed at the big global banks.
The EBA said that by December last year the top 42 banks already held more liquidity than they are required to by 2019. In Britain, top banks are being encouraged to tap some of their excess liquidity to lend out and aid economic recovery.
There was, however, a liquidity shortfall of 225 billion euros among the remaining 128 smaller, more domestically-focused banks in the sample of 170 lenders studied by the EBA.
A third element of Basel is a leverage ratio set at 3 percent from 2018, meaning banks must hold capital equivalent to at least 3 percent of their total non risk-weighted assets.
It is meant to serve as a simple backstop in case banks have incorrectly added up their risk weightings to calculate core buffers. Regulators in Britain have been pushing hard for UK banks to meet this target as soon as they can.
The EBA said that by December last year, the average leverage ratio for 40 large banks it surveyed was 2.9 percent, with 58 percent of them reaching 3 percent.
The combined capital shortfall of those top banks that do not meet the 3 percent target was 106.6 billion euros, the watchdog said.
The EBA and the European Central Bank will carry out a health check of banks across the European Union later this year which is expected to show shortfalls in capital that will have to be plugged.
(Reporting by Huw Jones; Editing by Pravin Char)