The European Union executive said it will draft plans for member states to coordinate a recapitalisation of banks, as regulators met to check the capital buffers of stressed lenders they had granted a clean bill of health in July.
"We are now proposing member states to have a coordinated action to recapitalise banks and so to get rid of toxic assets they may have," European Commission President Jose Manuel Barroso said in a television interview relayed on YouTube.
It was the most explicit statement yet from a top EU official on joint action to help restore confidence in a banking sector that is increasingly being shunned by investors as the euro zone debt crisis deepens.
Barroso would not speculate on how much money would be needed but his comments helped to push European shares up nearly 2%.
Work on the plan to help banks deal with what Barroso called "toxic assets" continued, a Commission spokesman said.
"Proposals will be made to member states, and when …they have been finalised, they will be announced," the spokesman told a regular briefing.
Belgium sought on Thursday to reassure depositors in crisis-stricken Franco-Belgian bank Dexia that their savings were protected.
Some officials fear other lenders will suffer a similar fate to Dexia, even though they passed the European Banking Authority's (EBA) July stress test of 91 banks in the EU.
Those tests concluded that only eight banks failed and that they needed a collective 2.5 bln euros ($3.3 bln) — a fraction of the 200 bln euros the International Monetary Fund believes EU banks require.
"Dexia is just one particular case, but we may have other particular cases that were not identified as being in a vulnerable position in July but because of the developments in sovereign debt markets may find themselves in that category," an EU official said.
Finance ministers discussed the situation when they met earlier this week but did not agree on any plan to recapitalise, the official added.
The EU's Competition Commissioner, Joaquin Almunia, said there was a need to reassess bank assets, especially sovereign debt to promote recapitalisation, but taxpayer money should only be used as a last resort and in line with the bloc's state aid rules.
CAPITAL REVIEWS
The EBA, which concludes a two-day meeting on Thursday, said it was examining the resilience of lenders' safety cushions against the backdrop of the "current situation".
"The EBA is reviewing banks' capital positions," the authority said in an emailed statement.
Many banks are facing severe funding pressures due to market worries about their exposure to government debt from Greece and other peripheral euro zone countries.
The EBA is preparing the technical ground by determining which lenders should be included in any coordinated recapitalisation that its members would oversee.
The European Commission has no power to impose a recapitalisation plan on EU states.
Markets and industry officials say the key missing piece is whether enough money can be found fast enough to fund a recapitalisation plan and stop contagion from Greece or Dexia.
"The euro zone knows what it needs to do and should just get on with it," a UK banking industry official said.
The EBA said it has not announced a new round of stress tests and there are no updates to the figures on sovereign debt and other bank exposures it published in July.
MARK-TO-MARKET
The EBA, made up of regulators and central bankers from EU member states, said it was called on by the European Systemic Risk Board last month to "coordinate efforts to strengthen bank capital".
The EBA is under heavy pressure after its chairman Andrea Enria admitted on Tuesday that this year's stress test, in which Dexia passed with flying colours, failed to reassure investors.
A senior bank advisor said the EBA, as an internal exercise, may test banks twice a year to assess the impact of pricing their sovereign debt at the going rate, known as marking to market.
Some banks have come under heavy criticism for not updating investors clearly on the value of their government debt holdings and bumping up capital buffers to cover markdowns.
