European Central Bank sets bank capital rules

The European Central Bank’s supervisory arm has set the capital levels the eurozone’s largest lenders must hold and will communicate its draft decisions to the banks shortly, according to sources.

The ECB took over regulation of the region’s biggest banks late last year and was due to decide on the minimum Common Equity Tier 1 ratio, a key measure of a lender’s ability to absorb losses, that each bank has to hold.

The draft decisions, made late last week, cover most of the 123 banks under the ECB’s supervision.

“There was a supervisory board meeting on Thursday and Friday and the decisions were taken,” the source said.

Around 80% of the institutions supervised by the ECB will be required to hold a Common Equity Tier 1 ratio of between and 9% and 12%, with half of the total having to hold a CET1 of 10%, a banking source said before the ECB decision.

Leading banks, on both sides of the Atlantic, have come under market and supervisory pressure to hold capital well above minimum legal requirements, with a core ratio of 11%-12% now seen as the new norm compared with a fraction of this level before the financial crisis.

Europe’s 24 biggest banks had an average common equity ratio of 13.2% at the end of June, although that included Nordic, Swiss, and UK banks who have higher ratios than their eurozone rivals.

Some smaller banks also have weaker capital ratios.

After receiving the ECB’s demands, eurozone banks will have two weeks to raise any technical objections.

The ECB will then make a final decision, which could come in November, two of the sources said.

Meanwhile, British bank Barclays has sold a £1.6bn portfolio of UK loans to a group of investors led by US investment bank Goldman Sachs Group.

The loans are part of £110bn of assets Barclays has designated as “non-core”, which it no longer wants and intends to sell or run down.

Barclays’ non-core assets, which also include loans in continental Europe and assets held by its investment banking arm, had been cut to £57bn by the end of June, and the bank aims to reduce the total to about £20bn by the end of 2017.

Barclays inherited the loans from its purchase of Woolwich in 2003. The group of buyers was led by Goldman and also included Elderbridge.