(Adds detail on capital buffer and tests)
FRANKFURT, Oct 22 (Reuters) - The European Central Bank will ask the euro zone’s top banks in its upcoming balance sheet review for an 8 percent capital buffer, two sources familiar with the matter told Reuters.
The capital buffer could have been higher, but may still prove a challenge to some banks as they reshuffle their balance sheets to make them crisis-proof.
The ECB wants to unearth potential risks hidden in banks’ balance sheets before banking supervision is centralised under its roof from November 2014 as part of a broader plan for closer European integration to head off future financial crises.
To do that it plans to run an asset quality review (AQR) early next year, for which it will reveal details on Wednesday.
Two sources familiar with the matter told Reuters on Tuesday that the central bank will ask banks to fulfil an 8 percent capital buffer in its review.
The buffer will require a core tier one capital ratio of risk-weighted assets of 7 percent, as foreseen in the final 2019 stage of the Basel III regulatory framework, plus a 1 percent surcharge for systemically relevant banks.
“It will amount to seven plus one,” one of the sources said.
The surcharge could have been as high as 2.5 percent, according to the Basel rules.
The capital banks can use to meet the 8-percent target will be defined by the 2014 standards of the Basel rules.
On Wednesday, the ECB will publish a list of the roughly 130 euro zone banks it will supervise directly from November 2014. National supervisors remain in charge of the bloc’s smaller banks, but the ECB can intervene if necessary.
The ECB is also expected sketch out for all banks taking part at what stage a loan will be considered to have turned bad and when it is subject to “forbearance” - when a bank revises the terms of a loan when the borrower is in difficulty.
Aligning such definitions for all euro zone countries could mean that some banks will have to reclassify some loans and potentially increase the amount of cash to deal with debts unlikely to be repaid. (Reporting by Alexander Huebner, Philipp Halstrick and Eva Taylor; Editing by Paul Carrel)