EU to mull three-pronged plan for banks - sources
LONDON (Reuters) - European Union finance ministers will consider a three-pronged plan to restore investor confidence in the bloc's banks as part of wider efforts to stabilise euro zone finances, EU sources familiar with the situation said.
Finance ministers believe focussing on capital levels alone may not be enough to put banks on a firmer footing, and other investor concerns need to be addressed.
"This has to be a complete package," one EU source said on condition of anonymity.
People familiar with the options EU finance ministers will consider, say a three-pronged approach is emerging:
* A basic minimum core capital requirement for banks in the EU that is substantially higher than the 5 percent "pass mark" in the July stress test of 90 banks;
* An additional, temporary buffer on top of the new minimum requirement for those banks that have exposure to troubled euro sovereign debt. This does not necessarily mean banks would have to take full market writedowns to hit profits straight away;
* Ensuring that banks have adequate "term" funding, even if it means state-backed guarantees.
The benchmark capital level would not be based on an adverse scenario, but rather each bank's core Tier 1 capital position at the end of June, with losses for troubled sovereign bonds applied.
German finance minister Wolfgang Schaeuble said on Monday he expects a minimum ratio of 9 percent to be agreed, echoing comments from French officials and from sources last week.
That could leave banks needing far less than many estimates suggested last week.
Based on a 9 percent minimum core capital requirement after a Greek restructuring and sovereign debt stress -- rather than a full adverse scenario -- banks' capital deficit would be more than 100 billion euros (87.4 billion pound), lower than the 220-300 billion expected by the market, said Huw van Steenis, analyst at Morgan Stanley.
That could leave deficits of 2-5 billion euros for Deutsche Bank (DBKGn.DE), 2-4 billion euros at Societe Generale (SOGN.PA) and up to 3 billion euros at BNP Paribas (BNPP.PA), van Steenis estimated.
EU finance ministers would set the levels, and a clear timescale for reaching the minimum capital levels and having funding guarantees in place, if needed, the EU source said.
The three-pronged approach would help tailor the response to individual banks, because the sovereign debt "buffer" would be zero for some and not all lenders would need funding guarantees.
A global accord, Basel III, is being phased in from 2013 to introduce minimum core capital requirements of 7 percent by the start of 2019.
"The way to address the problem is we have to overshoot the regulatory minimum requirements on capital," one source said.
The quality of the higher basic capital would have to be at least as good as that accepted for core Tier 1 calculations in the July EU stress test.
France's government spokeswoman said on Monday that European governments would ask banks to achieve a 9 percent capital ratio by 2013 as part of a comprehensive package to draw a line under the euro zone's debt crisis.
"We will ask all European banks to have 9 percent capital ratios by 2013 to be more solid to face risk," Valerie Pecresse told France's RMC radio.
It is unclear whether the extra buffer at banks exposed to the sovereign debt of troubled euro zone countries will have to be of equally high quality, or could also comprise hybrid debt.
Banks could be required to convert debt into equity or, if that is not possible, national governments would have to provide a "backstop", a commitment EU states made on paper ahead of the July stress test. (Editing by Will Waterman and David Hulmes)
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