EU lenders set for tougher capital tests

EUROPE’S banks will have to achieve a significantly stronger capital position under a quick-fire regulatory health check and may need to raise some €100bn (£87.5bn), banking and regulatory sources said yesterday.

The European Banking Authority (EBA) wants banks to hold a minimum core tier one ratio of at least seven per cent under a recession scenario, and those who fail will be told to bolster their capital position, two banking sources said.

Other sources with knowledge of the process said no final decision has been taken on the pass mark, with some citing a range of seven to ten per cent.

Talks also continue on a definition of the capital that can be included -- an element that proved divisive in the EBA’s last test in July.

The data was requested on Friday and banks have been asked to submit it by the end of Tuesday, three sources said. The data is based on the end of June.

“A significant number of banks are expected to fail the stress tests,” one of these sources said.

The form banks must fill out showed they must notify capital levels as of the end of June.