November 10, 2015 / 1:02 PM / in 4 years

UPDATE 2-Only a handful of big euro zone banks miss capital requirement: ECB

* Fewer than 10 banks have capital below SREP

* Most of them can fill hole by retaining profits

* 2016 requirements are blueprint for future (Adds EBA comment on stress test)

By Balazs Koranyi

FRANKFURT, Nov 10 (Reuters) - Only a handful of Europe’s top banks have less capital than required and financial regulation is now entering a period of normalcy after years of crisis management, top regulators said on Tuesday.

Fewer than 10 of the 122 banks directly supervised by the European Central Bank don’t have the capital limit set in an ongoing review. But most of them will reach the requirement if they retain earnings from this year, leaving just a handful, Daniele Nouy, the head of the ECB’s regulatory arm said.

“About 10 do not have it yet, but the vast majority of these 10 will have it after retaining earnings of the current year. Less than 10,” Nouy said on the sidelines to a conference.

“The others probably would have needed additional capital anyway - with or without the SREP decision - and they are planning those capital increases.”

The ECB’s Single Supervisory Mechanism (SSM) has slightly increased the amount of additional capital, known as Pillar 2, that the banks under its supervision will need to hold next year compared with 2015.

Some in the banking industry have been worrying that the increase in the 2016 capital requirements would be the harbinger of further increases in the coming years.

But once the new Pillar 2 levels are set as part of each bank’s Supervisory Review and Evaluation Process (SREP), they were likely to serve as a blueprint for future demands, Nouy said.

“We believe we are quite close to a steady state,” Nouy said, referring to any possible increases in Pillar 2 levels. “We think that’s it for us, based on the current risk profile.”

Still, she added some bank could still face additional requirements as regulations are phased in until 2019 and banks to need to meet so-called Total Loss Absorbing Capacity (TLAC) requirements.

Adam Farkas, executive director of the European Banking authority also said that regulators are entering a new phase as banks have already made significant headway in building capital and adjusting their operations.

“The new regulatory structure is moving toward steady state, a regular operational mode,” Farkas told a conference.

In a sign of normalisation, banking authorities will not assign passing or failing grades in next year’s stress test, using the results instead as a basis of next year’s SREP process.

“It has a main objective to foster market discipline by increasing the transparency of the non stressed and stressed numbers with the help of analysts and the media,” Farkas said.

“We have seen that this market discipline is increasing in significance and putting significant pressure on banks to improve their financial standing.” (Writing by Francesco Canepa; Editing by Larry King/Jeremy Gaunt)

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