UPDATE 2-Banks face 374 bln eur shortfall under capital rules
* Top banks need 374 bln eur to hit 7 pct core capital-Basel
* Estimate is 111 bln eur less than assessment in April
* Shows big banks need to bolster capital for tough rules
* 30 big banks would have had capital below 7 pct
By Steve Slater
LONDON, Sept 20 (Reuters) - The world's top banks need to step up efforts to raise cash or hold on to more profits after regulators estimated they would have had a shortfall of 374 billion euros ($488 billion) had new capital rules been in place last year.
Banks have in recent years been bolstering capital ahead of the new regime, designed to create a bigger safety net to protect taxpayers from having to bail out banks and avoid a repeat of the 2007-09 financial crisis.
The new rules will be phased in from January and be fully in place in 2019 but investors and regulators want banks to implement them early.
The Basel Committee of global regulators said on Thursday that if the new rules, known as Basel III, had been in force at the end of December, the biggest banks would have needed 374.1 billion euros to hold core capital of 7 percent of assets, the target level banks will have to meet.
That capital shortfall was down 111 billion euros from a previous assessment made in April, when the committee estimated banks would have needed 486 billion if the rules had been in place at the end of June 2011.
The 102 biggest banks had an average capital ratio of 7.7 percent based on the new rules.
But the capital of five of those banks would have been below 4.5 percent and another 25 would have been short of the 7 percent pass mark, which includes a buffer they need to build up to prepare for bad times and a surcharge for global systemically important banks where applicable.
The rules mean banks have to hold more capital in reserve to cover loans.
BIS said its assessment, being carried out every six months, is not comparable to industry forecasts because banks should meet much of their needs by retaining profits, shedding loans and changing their business models, as well as taking into account the phased introduction.
It estimated the 102 banks in the sample last year made 356 billion euros in profit after tax and before any payouts.
New liquidity rules also look likely to leave banks short of funding, the Basel Committee said.
The liquidity coverage ratio (LCR), a key plank of new international standards, would have averaged 91 percent if applied at the end of December, short of the 100 percent target. Banks have until 2015 to meet the LCR standard.
That would have left an aggregate liquidity shortfall of 1.8 trillion euros, representing about 3 percent of the assets for those banks, the Committee said.
CRITICISM OF RULES
Some bank experts say the new Basel regulation have become too complex and opaque, especially the assessment of risk weightings.
Even at this late stage, some top regulators have called for a rethink.
"It is time for international capital rules to be simple, understandable and enforceable," Thomas Hoenig, a director at the U.S. Federal Deposit Insurance Corp, said last week.
He said if Basel III is not changed, the United States should not implement it.
The Basel Committee said risk-weighted assets increased on average by 18.1 percent under the Basel III framework, mainly due to increased risk applied to counterparty credit and holdings in trading books or securitised products.
The banks' average core capital of 7.7 percent under Basel III compares with an average reported core capital level of 10.4 percent, the Committee said.
The BIS did not name the banks where the shortfalls lie.
Half of the gap is likely to be in Europe. The European Banking Authority (EBA) estimated 27 of its top 48 banks would have needed to raise 242 billion euros had the new minimum standard been in place in June 2011.
Thirteen of the big banks in the survey came from the United States, 13 were from Japan, eight were from Germany and there were six each from Britain, Canada, China and Turkey.
The Committee estimated that after the top 102 banks, the next 107 biggest banks would have needed to find 21.7 billion euros for all to reach a ratio of at least 7 percent.
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