The European Banking Authority said on Wednesday the bloc's banks need to raise 106 billion euros (91 billion pounds) of capital to meet a new minimum core tier 1 capital ratio of 9 percent by the end of June 2012.
The measure is part of broader efforts being thrashed out by euro zone leaders in Brussels to restore confidence and stability to the bloc's markets and economy.
Greek banks will need an extra 30 billion euros of extra capital, the EBA said in a statement, although this is covered by an existing programme of aid. This would appear to reduce the amount of fresh capital needed.
The capital raised, which for some will entail a top-up temporary buffer to cover sovereign risk, will have to be of the highest quality, although new issuance of very strong convertible capital would be accepted, the watchdog added.
Banks are expected to withhold dividends and bonuses as part of their efforts to meet the new requirements which exceed the 7 percent minimum world leaders have agreed to phase in from 2013.
The building of these buffers will allow banks to withstand a range of shocks while still being able to maintain an adequate capital level, the EBA said.
To address another problem being faced by many banks -- the difficulty in funding themselves over the coming year -- public guarantee schemes will be set up where appropriate to support banks' access to term funding at reasonable conditions.
Banks would have to pay a fee for these guarantees.
The EBA has been asked to work with the European Union Commission, the European Central Bank and European Investment Bank to urgently explore options for achieving this objective, the watchdog said in a statement.
The EBA says it wants to avoid a spiral of forced deleveraging and the ensuing credit crunches, which would affect the real economy.
A temporary buffer to cover banks' exposure to stressed sovereign debt forms part of the overall 106 billion euro capital requirement from the 70 banks reviewed by the EBA.
The authority said the 106 billion euro total is preliminary and indicative, with a final figure to be published next month, when banks will be asked to reveal their final capital shortfall figures on an individual basis.
Banks will have until the end of the year to tell supervisors how they will make up the capital shortfall by the June 2012 deadline.
The EBA said that existing convertible instruments -- hybrid debt that converts to equity at a pre-set trigger point -- will not be eligible for making up capital shortfalls unless they will be converted into common equity by October 2012. ($1 = 0.724 Euros)
(Reporting by Huw Jones and Steve Slater; editing by Rex Merrifield)