Brussels (MNI)- The bank recapitalization plan approved in
principle by EU leaders here tonight will force 70 European banks to
raise E106 billion in new capital, the European Banking Authority said
Wednesday.

The plan, as expected, will require banks to raise their Tier 1
capital to 9% of assets by June of next year. The E106 billion estimate
is preliminary and the EBA will issue a final number in November, based
on banks’ capital and sovereign debt figures on Sept. 30.

As part of the plan to restore confidence in European banks, the
EBA also urged governments to put in place liquidity guaranty programs
that, for a fee, would ensure that banks have access to reasonably
priced funding.

“This would help banks to continue their lending activities in 2012
and to avoid a spiral of forced deleveraging and the ensuing credit
crunches,” the EBA said.

The banking group added that “the current reliance on ECB financing
has been a significant source of stability for bank funding. However,
the term funding market is currently closed due to increasing concerns
over the sovereign situation and banks may find it difficult to address
their funding needs in 2012.”

The banks facing the biggest hits under the new capital plan
include Greek banks, which need E30 billion in fresh capital. The EBA
noted, however, that an existing backstop facility in Greece can cover
that amount.

Spanish banks have the second biggest capital shortfall, at E26
billion, followed by Italy at nearly 15 billion.

The Bank of France said in a statement that the four largest French
banks, BNPParibas, Group BPCE, Credit Agricole and Societe Generale, are
facing a capital shortfall of E8.8 billion.

Restoring confidence in European banks requires a three-pronged
approach of addressing sovereign debt, bank capital and funding
guarantees, said the EBA.

Such programs, deployed by governments in 2008, were successful in
stabilizing market following the collapse of Lehman Brothers. The EBA
said this time a more coordinated European approach was called for.

Guarantee programs are unlikely to cost taxpayers any money and in
fact proved profitable for many European governments, the EBA said.

–By Jack Duffy, Johanna Treeck and Peter Koh
— Brussels newsroom, +324-9522-8374

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