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EU banks face 159 billion euro funding shortfall - watchdog

[LONDON] Banks in the European Union have less than a year to raise 159 billion euros (S$236.4 billion) to comply with new rules designed to make sure they have enough money to meet long-term demands on their finances, the EU bank watchdog said on Tuesday.

The European Banking Authority said the shortfall was in relation to the new net stable funding ratio, or NSFR, which requires banks to maintain a minimum source of longer-term funding from January 2018.

While the average funding ratio across EU banks sampled by the EBA was above the 100 per cent minimum at 107.8 per cent, there was a shortfall of 158.7 billion euros due to some banks being below 100 per cent, the EBA said.

This NSFR shortfall is equivalent to just 1.7 per cent of the 9.1 trillion euros in total assets the non-compliant banks hold, the EBA said. "Compared with previous periods, there has been a continuous increase in banks' NSFR, which is mainly driven by the increasing amount of available stable funding," the watchdog said.

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The funding ratio is part of new rules - known as Basel III - brought in after the 2007-2009 financial crisis. These include tougher basic bank capital requirements which have to be met by 2019. The EBA said there was now no cash shortfall, meaning all banks were now compliant with the basic capital rules.

The average common equity ratio of capital to risk-weighted assets was 12.8 per cent at the end of June last year, assuming all the Basel basic capital rules were in force, well above the 7 percent minimum ratio required.

Basel also introduced a short-term funding ratio for banks, known as the liquidity coverage ratio or LCR, which is being phased in. The EBA said the shortfall to meet full implementation by January next year was only 2.5 billion euros.

The EBA has already said that biggest problem now facing European banks is not basic capital, but the amount of poorly performing loans on their books.