Many European mid-sized banks may vanish: Dresdner

(Reuters) - Dresdner said many European mid-sized banks could disappear and more capital increases in the sector are virtually inevitable.

However, the brokerage said a few large banks satisfactorily passed all its "acid tests" and still looked extremely cheap.

In a note dated December 11, Dresdner currently estimated a capital deficit of 75 billion euros (67 billion pounds) for the European banking sector but added that the situation may get worse.

"Governments need the banks to keep on lending in order to avoid a vicious circle and prevent recessions from becoming depressions," analyst Arturo De Frias said.

De Frias added that banks cannot lend cheaply in a recession and recapitalise at the same time as loan loss ratios (LLR) will rise abruptly and the most convenient solution would be to over capitalise the banks in advance.

(Reporting by Santosh Nadgir in Bangalore; Editing by Jarshad Kakkrakandy)