BRUSSELS — Europe’s biggest banks must raise billions of euros in capital to better withstand market turmoil, the European Commission proposed Wednesday, as it embarked on a major push to contain the continent’s escalating debt troubles and avert a second recession.
The fear gripping the financial sector is that banks may soon have to take big losses on bonds they own from governments with shaky finances, like Greece. That uncertainty is stifling lending — both between banks and to the wider economy — and threatening to kill off a halting recovery in the 17-nation eurozone and much of the rest of the world.
The commission, the EU’s executive body, believes that boosting confidence in Europe’s financial sector is a crucial step that will allow the continent’s leaders to tackle Greece’s massive debts and stop the debt crisis from spinning out of control.
The commission also is trying hard to protect large, troubled economies like Italy and Spain, which are too big to be bailed out, from being dragged into the debt crisis.
Wednesday’s proposals, presented by European Commission President Jose-Manuel Barroso, foresee that key lenders in Europe will have to implement new international rules on bank capital much earlier than 2019, as was initially planned.
Barroso also warned that banks should not be allowed to pay out dividends or bonuses until they have raised their capital buffers to the new standards.
Under the so-called Basel III rules, 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, compared with the 5 percent to 6 percent they needed to pass this summer’s stress tests. Many experts have criticized those stress tests as much too lenient.
Banks immediately came out against the proposed acceleration of Basel III.
