EU bank recap cost estimated at less than €100 billion

Europe's plan to strengthen its banking system would fall well short of market expectations, according to a Financial Times report. Latest official estimates have put the capital shortfall at less than €100 billion, to be made up over the next six to nine months, the newspaper said.

The EU's estimate of the necessary recapitalisation effort was comparable to a recent assessment in an IMF report that identified a €200 billion euro hole in banks' balance sheets due to sovereign debt write-downs, the article said.

However, the FT said Europe's estimates were still far short of analyst estimates that put the banks' capital deficit at up to €275 billion.

The FT cited two unnamed sources as saying that the European Banking Authority (EBA), which ran the emergency stress test on Europe's banks, had suggested raising between €70 billion and €90 billion for the bank recapitalisation exercise.

The amount, it is believed, would allow banks to meet a 9 per cent threshold for their core Tier one capital ratios, a measure of financial strength that would go beyond current requirements, following marking down of their sovereign bond holdings of the eurozone's peripheral states to market values.

Meanwhile, wildly divergent views on the extent and impact of stress tests on Europe's banks have been voiced as hopes of a convincing bailout plan receded despite next Sunday's deadline for a solution to the banking crisis.