18 MAR 2011
(Reuters) - Europe's regulators are still haggling over how tough to be on capital requirements for banks undergoing more stress tests after last year's flopped.
Investors hope a second round of stress tests already underway will clear up worries about which lenders have sufficiently robust capital to withstand economic shocks.
But the region's new banking watchdog said on Friday that a stricter capital definition it hoped would make this year's exercise more credible had still not been agreed, preventing it from setting a pass or fail mark.
Stress testing of about 90 European Union banks began this month and on Friday the European Banking Authority published details of the economic shock that will be applied to individual banks and the test's methodology.
Last year banks had to meet a so-called Tier 1 capital requirement of 6 percent to pass. This refers to a broad measure of a bank's resilience, but lenders can pad it with lower quality assets which obscure how much cash is available to tap.
Analysts would have preferred to used a stricter 'core' Tier 1 benchmark comprising shareholders' capital and retained earnings, possibly with a 5 percent pass rate.
In a bid to toughen up this year's test, the pass mark will be determined by how much core capital a bank ends up with after applying economic shocks devised by the European Central Bank.
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