EU pushing capital buffers for big banks

BRUSSELS - The European Union plans to force the region's biggest banks to raise billions of euros in capital to better withstand market turmoil caused by the high debt of several member countries, the European Commission president said Wednesday.

The president, Jose Manuel Barroso, also warned that key European banks should not be allowed to pay out dividends or bonuses until they have raised their capital buffers to the new standards.

The fear gripping the financial sector now is that banks could take big losses on bonds they own from governments with shaky finances, such as Greece. That uncertainty has stifled lending - both between banks and to the wider economy - which threatens to throw the 17-nation eurozone into a new recession.

Banking shares and the euro continued to surge after Barroso made the proposals, continuing a weeklong rally triggered by hope that the eurozone may finally get a grip on the worsening debt crisis.

Under the new rules, systemically important banks in Europe will have to implement new international rules on bank capital much earlier than 2019, as was initially foreseen.

That means the continent's biggest banks have to bolster the financial pad they maintain to absorb losses to about 9 percent of their loans, investments and other risky assets, said a person familiar with the matter, compared with the 5 percent to 6 percent they needed to pass this summer's stress tests.

The person did not say when the new capital levels would have to be reached, saying only that it would be "substantially earlier" than 2019.

The European Banking Authority is scheduled to disclose the new standards next week.

Barroso presented the proposals on bank capital as part of a broader plan to tackle the currency union's debt troubles, which has dragged on for nearly two years.

He also suggested continued support for Greece, a more effective use of the resources of the eurozone bailout fund, and wider powers to allow the commission to control national budgets.

The EU bloc's leaders are to meet on the debt crisis at a summit on Oct. 23. Officials believe that meeting may be their last chance to solve the debt crisis before it spins out of control.