Large banks in the euro area need to raise about 400 billion euros ($519.2 billion) in capital to bring their leverage ratios close to those of peers, according to the Organization for Economic Cooperation and Development.
The lenders need to raise an amount equal to about 4.25 percent of gross domestic product in the euro area to boost core Tier 1 capital to 5 percent of assets, the Paris-based OECD said today in a report. The OECD has recommended a minimum 5 percent ratio of total assets and said that is close to the median leverage ratio of the largest U.S. and European banks.
Regulators are ordering banks to boost reserves to prevent a repeat of the taxpayer-funded bank rescues that followed the 2008 collapse of Lehman Brothers Holdings Inc. European lenders are also fighting to win back investor confidence after the sovereign-debt crisis sparked concern banks are too closely entwined with indebted states.
Banks in Greece, France and Belgium would require capital amounting to 6 percent or more of gross domestic product, while the capital needed at banks in Portugal, Italy, Austria and Spain is less than 2 percent relative to GDP, according to the report.
The OECD said the 5 percent ratio is “more demanding” for banks in the euro area because they apply standards that account for derivative positions on a gross basis rather than netting them as their competitors in the U.S. do.
The OECD said that the 5 percent ratio doesn’t form part of the Basel III framework.