The European banking system is 39.7 billion euros (£35.19 billion) short of the capital it needs to implement new regulations meant to ensure the world’s banks can withstand financial shocks, the European Banking Authority (EBA) said.
The Basel III rules, agreed earlier this month, require banks to hold more capital and cash to avoid a repeat of the 2008 financial crisis, when taxpayers had to rescue some of the world’s biggest lenders with billion-dollar bailouts.
The industry has years to introduce the regime, however.
In an assessment of the impact of the reforms on European Union banks, the EBA looked at data from 2015 on 88 banks from 17 EU countries. Of those banks, 36 were internationally active and so have higher capital requirements than the others.
The EBA found that EU banks would require another 17.5 billion euros in core capital, such as common stocks and reserves, with the total capital shortfall being 39.7 billion euros.
It said the analysis did not take into account some of the changes made in December following opposition to the new rules from the industry and some governments, nor any capital increases within the banks since December 2015.
European banks are still unhappy that the compromise deal reached in December puts them at a disadvantage to their U.S. rivals, because it requires them to hold bigger capital buffers against mortgages.
Politicians from the continent have argued against significant increases in capital and warned this would make some of the banks’ services more expensive.
The increases represent a 12.9 percent increase in core capital across all 88 banks, or 14.1 percent for the large and internationally active banks and 3.9 percent for the rest.
The EBA said it would conduct additional impact assessments to scrutinise those changes it did not include in the review, as well as to take advantage of more recent and better quality data provided by the banks.
Legislators around the world still need to ratify the agreement reached earlier this month, which could prove to be difficult as lawmakers in countries like the U.S. are pushing to relax financial regulation.
Source: Reuters (Reporting by Emma Rumney; Editing by Elaine Hardcastle)