Top EU banks would have €70bn capital shortfall under new rules

The top 42 banks in the European Union would need an extra €70.4 billion of capital to comply with new rules that take full effect in 2019, the bloc's banking watchdog said today.

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 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 per cent 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.

The EBA said that by December last year, the average leverage ratio for 40 large banks it surveyed was 2.9 per cent, with 58 per cent 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.