This radical approach, led by French banks BNP Paribas and Société Générale, would be copied by lenders across Italy, Spain and Germany.
However, the banks’ “shrinkage” strategy is likely to prove controversial with politicians and regulators if it led to bankers lending less money to customers, jeopardising the eurozone’s fragile recovery, analysts warned. European companies rely on banks for as much as 80 per cent of their funding, compared with only 30 per cent for US companies.
On Wednesday, José Manuel Barroso, president of the European Commission, outlined the broad terms of a compulsory recapitalisation for Europe’s leading banks, requiring “a temporarily higher capital ratio”, with restrictions on dividends and banker bonus payments in the interim.
Based on information from people close to the process, the regulator is poised to set a higher bar than expected – a 9 per cent ratio of core tier one capital to risk-weighted assets – for banks across the continent. A deadline of six to nine months would be set for forcible recapitalisation by governments, if banks have not reached the ratio under their own steam.
Many economists, however, support the European authorities’ efforts to recapitalise the banks quickly, even if it results in lower lending levels.
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