* Banks with CEE exposure must meet Basel III rules early
* Regulators allow banks to count non-voting participation capital
* Require extra capital buffer of up to 3 pct from 2016
* Big three banks accept rules, commit to region - FMA (Adds FMA comment, background, updates shares)
By Michael Shields and Sylvia Westall
VIENNA, Nov 21 Three Austrian banks with big businesses in emerging Europe need an extra capital buffer by 2016 and must meet the Basel III banking industry capital rules six years ahead of schedule to boost the safety of the financial system, regulators said on Monday.
The requirement covers Italian group UniCredit's Bank Austria unit, Erste Group Bank and Raiffeisen Bank International, which officials said had all accepted the guidelines and would continue to operate in central, eastern and southeastern Europe.
The moves come as Austrian officials seek to convince financial markets and debt ratings agencies that the country deserves to keep its AAA sovereign debt rating despite the euro zone debt crisis.
Under a package of measures agreed after months of talks, the banks will have to hold an additional core capital buffer of up to 3 percent of risk-weighted assets from January 2016 depending on how much risk their business models contain.
Guidelines put forward by the Austrian National Bank and FMA market watchdog on Monday said the banks -- the biggest lenders in central and eastern Europe -- also had to meet Basel III rules in full by January 2013.
The banks can count within this capital requirement the non-voting participation capital they got from Austria and private investors as part of a state-led aid package during the 2008/2009 financial crisis.
Shares in Erste were down 8.5 percent and Raiffeisen's down 4.4 percent by 1520 GMT, while the STOXX Europe 600 bank sector index was off 3 percent. Italy's UniCredit was down around 1.7 percent.
The general Basel III rules agreed by international regulators require banks to hold a core capital buffer of 7 percent of their risk-weighted assets by the start of 2019.
The head of the European Bank of Reconstruction and Development said on Friday that western banks will inevitably withdraw funds from eastern Europe in response to higher capital requirements.
There is also concern the euro zone debt turmoil could spill over into faster-growing central and eastern Europe.
BEYOND BOOM AND BUST
Austrian officials said the region was strategically important for the small Alpine economy and its banks.
"This set of measures will provide a sustainable growth model both to the CESEE economies and to the banks active in the region, irrespective of pronounced boom-bust cycles," Austrian central bank head Ewald Nowotny said in a statement, referring to central, eastern and southeastern Europe.
"Not only will the measures benefit the stability of the local financial markets, but Austria's exposure to this region will also become more sustainable."
The new rules will link lending growth at banking units to growth in local refinancing, primarily via local deposits but also via local issuance activity and supranational funding from agencies like the EBRD or European Investment Bank.
"In the future subsidiaries that are particularly exposed must ensure that the ratio of new loans to local refinancing does not exceed 110 percent," the statement said.
Officials said the guidelines applied to new business.
"We will strengthen the quantity and the quality of the Austrian parent banks' capital in order to increase their risk buffer. We would like to increase the subsidiary banks' autonomy, which means their autonomy in refinancing methods. Simply put, our aim is credit growth only from and with the market," FMA co-head Kurt Pribil told reporters.
The banks also need to present recovery and resolution schemes -- so-called "living wills" outlining how they would save themselves or wind down without damaging the rest of the banking system in the event of a crisis.
Nowotny said there was no danger of the banks pulling out of the region and said the new guidelines would not make banks need more capital next year.
(Editing by Jon Loades-Carter and Greg Mahlich)