ECB sets capital requirements for euro zone’s top lenders

THE European Central Bank’s supervisory arm has set the capital levels that the euro zone’s largest lenders must hold and will communicate its draft decisions to the banks shortly, several sources with knowledge of the matter said on Monday.

The ECB took over regulation of the region’s biggest banks late last year and was due to decide on the minimum Common Equity Tier 1 ratio, a key measure of a lender’s ability to absorb losses, which each bank has to hold.

The draft decisions made late last week cover most of the 123 banks under the ECB’s supervision, one of the sources said. “There was a supervisory board meeting on Thursday and Friday and the decisions were taken,” the source said.

Around 80 per cent of the institutions supervised by the ECB will be required to hold a Common Equity Tier 1 ratio of between and nine and 12 per cent, with half of the total having to hold a CET1 of 10 per cent, a banking source said before the ECB decision.

Leading banks on both sides of the Atlantic have come under market and supervisory pressure to hold capital well above minimum legal requirements, with a core ratio of 11-12 percent now seen as the new norm compared with a fraction of this level before the financial crisis.

Europe’s 24 biggest banks had an average common equity ratio of 13.2 per cent at the end of June, although that included Nordic, Swiss and UK banks who have higher ratios than their euro zone rivals.

Some smaller banks also have weaker capital ratios. After receiving the ECB’s demands, euro zone banks will have two weeks to raise any technical objections, another source said. The ECB will then make a final decision, which could come in November, two of the sources said.