European governments likely will seal an agreement to set aside between €107 billion-€108 billion ($150 billion) to boost the cash reserves of banks weakened by their exposure to sovereign debt, three officials familiar with the discussions said Sunday.
European Union finance ministers discussed the recapitalization plan during a marathon 10-hour session Saturday, with Swedish Finance Minister Anders Borg saying afterward that they had agreed on the foundations.
One EU official said the target was €107 billion, while two others said it would be €108 billion. The idea is to use the money to boost Tier 1 capital ratios—the ratio of a bank's core equity capital to its total risk-weighted assets—up to 9%.
Several EU officials had said there was some resistance to such a high capital ratio, but on Saturday evening Spanish Finance Minister Elena Salgado said 9% was a "reasonable" target.
The plan is part of a wider strategy for resolving the region's debt crisis.
Two of the three officials said there would be no final agreement on the capital ratio and the size of the recapitalization until the full crisis package is worked out. The deadline for that is a European summit Wednesday.
European Commission President José Manuel Barroso had said last week that a broader response to the debt crisis would include a temporarily higher capital ratio to shore up banks.
The near-collapse of Franco-Belgian bank Dexia Group SA earlier this month added urgency to the push for a bigger capital buffer against financial shocks. The bank had easily passed the previous round of stress tests on European banks.
To pass the tests, conducted in July, the region's largest banks had to hold a Tier 1 capital ratio of 6%. That rate is due to increase to 8% under the Basel III capital rules.
The difficulty in finalizing an accord reflects the close link between the main policy challenges facing the EU: seeking a bigger private-sector contribution to the second Greek bailout package and maximizing the firepower of the region's bailout facility.
The bigger the private-sector write-downs for Greece, the greater the losses for banks and therefore the greater the amount of money that needs to be set aside for the bank recapitalization plan.
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