EU speeds up capital rules for big banks

The European Union plans to force the region's biggest banks to raise billions of euros in capital to better withstand market turmoil over the high debt in several euro countries, the European Com-mission's president said Wednesday.

José Mañuel Barroso also warned that key European banks should not be allowed to pay out dividends or bonuses until they have raised their capital buffers to the new standards.

The fear gripping the financial sector now is that banks could 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 - which threatens to throw the 17-nation Eurozone into a new recession.

Banking shares and the euro continued to surge after Barroso's proposals, continuing a weeklong rally triggered by hopes that the Eurozone may finally get a grip on the worsening debt crisis.

Under the new rules, systemically important banks in Europe will have to implement new international rules on bank capital much earlier than 2019, as was initially foreseen.

That means the continent's biggest banks have to bolster the financial pad they maintain to absorb losses to about nine per cent of their loans, investments and other risky assets, said a person familiar with the matter, compared with the five per cent to six per cent they needed to pass this summer's stress tests.