* EBA sticks to capital buffer target
* Dividends, bonuses at risk if banks fall short
By Huw Jones and Steve Slater
LONDON, Oct 3 The European Union's banking
watchdog is sticking to a capital target for banks to help
shield them from the euro zone debt crisis, saying lenders that
fall short won't be able to pay dividends or big bonuses.
Dousing banks' hopes that the European Banking Authority
(EBA) would lessen its demands, the London-based regulator said
on Wednesday banks had to maintain a capital buffer equivalent
to 9 percent of their risk-weighted assets indefinitely.
Some banks have complained the capital requirement, combined
with other regulatory restrictions imposed since the credit
crisis, is preventing them from lending to companies and
households, forcing them instead to pull back their loans.
The so-called core Tier I capital ratio is seen by markets
as a key indicator of a bank's strength. Most banks saw this
sapped by the credit crunch that started in 2007 and was closely
followed by the euro zone debt crisis.
New global Basel III bank capital rules will be phased in
from January and the 9 percent is well above the 3.5 percent
banks should have at the start, meaning they had hoped to run
down their ratios initially.
However, Basel's much tighter definition of what can be
included in the capital buffers means some banks meeting the
EBA's 9 percent target may still need to find more capital to
meet these stricter rules being phased in over the next 6 years.
The EBA said that following its "stress test" of the
industry in 2011, banks in the EU have collectively raised 205
billion euros in new capital and that had not significantly
reduced their lending.
EU banks had to meet the EBA's 9 percent target by June, but
the regulator said four lenders failed: Italy's Monte dei Paschi
; Cyprus' Marfin Popular Bank and Bank of Cyprus; and
"It's an important step forward but there's still some way
to go. The capital raised needs to stay in the system," EBA
Chairman Andrea Enria told Reuters.
"After the efforts made to get here we don't want to see the
capital being released so that there's a mountain to climb to
get to the final target of Basel III," Enria said.
Early in 2013 each bank will be formally told the value of
capital in euros that will effectively be put under supervisory
lock and key so that dipping into it would trigger a clampdown
on dividends, share buybacks or staff compensation.
The EBA also refused to relax how much banks must set aside
to cover their exposures to euro zone government debt, some of
which has been downgraded sharply, saying stability has yet to
return to bond markets.
The EBA has been criticised for not spotting problems at
banks in Ireland and Greece in the past, and in Spain in its
latest capital exercise.
"One is left with the impression that there is still a great
deal to be done in order to bring the EU banking sector as a
whole into line with internationally agreed capital standards,"
said Michael Wainwright, partner at law firm Eversheds.
Enria said the EBA and national supervisors will require
each bank to spell out their "glide path" to meeting the Basel
III requirement by 2019.
"If they derail from the path ... there are supervisory
actions bringing you back on track," Enria said.
Turning to day-to-day funding for banks, he said the
long-term liquidity provided by the European Central Bank (ECB)
- which is set to replace the EBA as supervisor for euro zone
lenders from 2013 - was providing the sector enough breathing
"Funding remains a delicate issue. We are very much focused
on funding," Enria said, adding banks must start weaning
themselves off ECB money and also improve the quality of their
assets such as recognising losses promptly.
There will be another stress test in 2013.
Enria hoped that EU leaders would decide soon on a proposal
to make the ECB the euro zone banking supervisor.
Twenty-seven European banks, which fell short of the minimum
9 percent capital level in last year's stress test, raised 116
billion euros, the EBA said. The capital raised also included
cash injected into troubled Greek banks and regional lender
Bankia in Spain.
Banks which were not told they must find cash still
strengthened their capital by 47 billion euros, the EBA said.
Basel III will be implemented in the EU under a revised
capital requirements law that has yet to be finalised.
The draft version was slammed this week by the Basel
Committee of global regulators who authored the accord, because
of attempts by member states to water down the quality of assets
that should be included in core buffers.
"I would have liked to have seen the Basel Committee
recognise our efforts to enforce a stricter definition of
capital. We intend to maintain this going forward," Enria said.
He called on member states and the European Parliament to
review the draft and bring its definition of capital back in
line with Basel III, saying "we really need to be very strict on