Europe banks asked to raise $154 billion

PARIS - The Associated Press

The entrance of the Commerzbank headquarters in Frankfurt is seen in this photo. REUTERS photo

European banks have to raise about 115 billion euros ($154 billion) to meet a new standard meant to inoculate the lenders against market turmoil, including bad government debt, a regulator said Thursday.

That’s about 8 billion euros ($10.73 billion) more than what the European Banking Authority (EBA) previously estimated.

European banks have billions of euros of risky government bonds on their books, and, as the continent’s crisis has deepened, investors have become increasingly concerned the lenders won’t be able weather all of the expected losses on those loans. That, in turn, has made banks wary of lending to one another since they worry that one of their number could go under at any moment.

In order to restore confidence in the banks and hopefully restart more normal lending, European Union leaders decided in October to force banks to raise more money to reassure markets that they’re prepared to weather coming storms.

The EBA said Thursday that the banks need to raise 114.7 billion euros ($153.8 billion) to meet those requirements. In October, it said it thought banks would need 106.4 billion euros.

The increase is largely due to a new calculation of the value of the bonds the banks hold: The previous estimate looked at the bonds’ June value, while the new one takes into account the prices from the end of September. The value of many of the loans plummeted during the summer.

“These buffers are explicitly not designed to cover losses in sovereigns but to provide a reassurance to markets about the banks’ ability to withstand a range of shocks and still maintain adequate capital,” the EBA said. It said banks should raise the money by first reinvesting profits and reducing bonus payments, cautioning them not to simply sell risky assets.