European Union regulators have decided to give large eurozone banks up to four years to raise capital buffers, a source told Reuters on Tuesday, setting for the first time binding requirements that some lenders might find difficult to meet.
Under new rules meant to reduce taxpayers' costs in a banking crisis, eurozone banks will have to issue a sufficient amount of debt that would be written down, or bailed-in, to absorb losses if they fail.
These buffers had so far not been specified, giving banks more time to cover the new financing needs, which have been estimated between €186 billion and €276 billion - a daring task for a sector hit by a drop in confidence after hundreds of billions of euros were spent by governments to bail out lenders during the 2009-2013 eurozone crisis.
But EU regulators have now imposed binding targets for "35-40 large banks", a source familiar with the proceedings said, without naming the lenders concerned by the decision.
This is like to force banks to pay higher interest rates on their debt. Finding creditors will also not be easy as small investors got their bond savings burnt in recent rescues of banks in Italy or Portugal.
Some banks have already achieved their target, others may need only two years, and others have been given the full four years
The write-down of bonds of Banca dell'Etruria, a regional lender in central Italy, led in 2015 to the suicide of a pensioner who lost his retirement money in the banking rescue.
The Single Resolution Board, the EU body in charge of disposing of failing banks and of setting capital buffers, has 142 banks under its remit, but smaller banks will be subject to binding targets at a later stage, the source said.
The bloc's biggest banks, considered systemic at global level, like Deutsche Bank, BNP Paribas and Unicredit, are already required to meet capital buffer targets by 2019 under international rules.
The 35-40 second-tier banks concerned by the SRB decision will have up to four years to meet their targets, the source said, pointing out that the transition and the targets were set bank-by-bank.
"Some banks have already achieved their target, others may need only two years, and others have been given the full four years," the source said.
The SRB will publish its decision on Wednesday. A spokeswoman for the SRB declined to give details on the decision, that could be subject to last-minute changes.
A banking official said that some banks may need more than four years to raise the needed capital.
The regulator also decided to set qualitative targets, obliging banks to hold at least 12% of "subordinated debt" which is easier to write down than senior debt.
Banks had hoped regulators stayed clear of this additional target, which could further increase their funding costs. Subordinated debt is more expensive for banks as buyers are subject to higher risks.
The target is however lower than what recommended by the European Banking Authority, the EU sector's watchdog, who called for a 13.5% target for large banks.
It is also lower than the target set by the SRB for globally systemic banks in the euro zone which have to hold at least 13.5% of subordinated debt.