The European Banking Authority has proposed that European banks be required to raise a collective 200 billion euros to boost their capital reserves. The industry regulator wants banks to have more funds in reserve to help protect them from any future shocks in the financial markets.
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The EBA is proposing that euro-zone banks should hold the capital equivalent of between 9% and 10% of their risk-weighted assets, on a Basel 2.5 basis, with sovereign debt in trading books and banking books marked down to market prices.
European Union governments must choose to accept the regulator’s proposal for the higher capital requirements to be enacted. However, while EU governments do have sole authority over the matter, they risk undermining the credibility of the regulatory system should they not follow the EBA’s suggestion.
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European governments would likely have to step in to help banks meet new capital requirements, as many may be unable to raise it on the markets, given the current financial climate.