Tough for Europe's banks to get capital: BlackRock

WASHINGTON (Reuters) - European banks are finding it "pretty challenging" to raise private capital to protect against sovereign losses when the global banking system is 25 percent too large, Peter Fisher, senior managing director at BlackRock, said on Friday.

"The banking system has to shrink. It is too big, and yet we need to inject more capital into it. My guess-timate is that it is still 25 percent too big and shrinkage is needed both in Europe and in North America," he told the Institute of International Finance annual meeting.

The European banks are under immense pressure from the International Monetary Fund, the United States and emerging economies to bolster their capital reserves against potential losses from the euro-zone debt crisis.

The IMF has estimated a 300 billion euro exposure to sovereign debt and urged euro zone banks to raise capital on the private market, and if that fails for governments to either inject funds or close down failing banks.

The issue is dominating the International Monetary Fund/World Bank meetings here. European officials are considering measures to strengthen their banking system, particularly in France where some banks have lost 40 percent of their market value on debt crisis fears in recent weeks.

Thomas Huertas, executive committee member of the UK Financial Services Authority, said on the sidelines of the IIF meeting that Europeans are actively discussing recapitalization.

"It is certainly one of the steps that is being discussed. I think you should keep an eye on the discussions," Huertas said.

"It is certainly urgent that the euro zone countries and Europe in general address the sovereign problems, and there are certainly discussions to separate the bank question from the sovereign question, and those are discussions that are going on now," he told Reuters.

These discussions include ways to recapitalize banks exposed to sovereign debt by adopting more rigorous mark-to-market pricing of assets, he said.

But Fisher, formerly a senior official at the New York Federal Reserve and at the U.S. Treasury, said excess capacity makes the capital-raising task particularly difficult.

"My estimate is for a 25 percent shrinkage, and it is pretty challenging to get the equity injected when we are trying to do this."

"The challenge is one of shrinking the global banking system on the other side of the North Atlantic, while at the same time we wish it to be more secure and have more capital behind it without touching the taxpayer pocket."

Uncertainty over the bank regulatory environment does not help either because it has caused management to delay recognizing the need to raise additional capital, which happened in the 2008 financial crisis and is happening again today, he said.

"The process is delayed so long that we end up having an argument in public about it, and that is the one place you cannot have an argument about raising capital because shareholders then protect themselves," Fisher said.

He expressed hope that the steep bank sell off of the past 30 days "does not come to naught, or certainly not worse than we are today."

(Reporting by Stella Dawson, Editing by Andrea Ricci)