Europe's banking regulator may need to bare its teeth to make sure its plan to fill a gaping capital hole is not left open to ridicule if lenders use over-optimistic assumptions on economic growth and asset sales.

Thirty-one banks must tell their national regulators on Friday how they plan to fill a 115-billion-euro capital gap aimed at helping restore confidence in the industry at a third public attempt.

It will then be up to the European Banking Authority's (EBA)Chairman Andrea Enria and his board to accept the plans or push them back.

The question is whether the member states collectively give Enria the moral authority to do it and don't undermine him, said Graham Bishop, a former banker who advises EU institutions on financial regulation.

Germany's Commerzbank has based its plan on no deterioration in the economy, Italy's Banca Monte dei Paschi di Siena assumes it will be able to sell assets by the end of June, and others plan to use profits or shrink assets -- both unpredictable in tough markets -- to meet targets.

A banking industry official said: Having set the criteria it (the EBA) has got a duty to review the plans of individual banks robustly and comment on them.

Only Italy's UniCredit has so far tapped shareholders for cash to meet its shortfall, and the expectation is that less than 10 billion euros of new equity will contribute to the capital rebuild.

Instead, banks plan to retain earnings, shrink loans to customers, convert hybrid debt into equity, buy back their own bonds, sell assets, and cut dividends or staff pay.

There's a lot of criticism of the EBA, but it has forced banks to look more aggressively at how they can deal with their balance sheets, said Chris Wheeler, analyst at Mediobanca.

POWER STRUGGLE

National regulators need to approve bank plans and will then pass them to the EBA board to review on Feb 8/9. There is no requirement to publish them.

Enria, a former Italian central bank official, has been less than a year at the helm of a watchdog that has had a baptism of fire with two stress-test exercises within months of each other that were criticised for being too soft on the banks.

The recapitalisation plans are organised under a non-legally binding recommendation from the EBA, meaning the watchdog has no power to direct recalcitrant banks or national supervisors to amend any plans that don't comply.

Under the recommendation, which EBA's board made up of supervisors from all EU states approved in November, individual supervisors must comply or else explain for any discrepancy.

The issue of recapitalisation is one of the best signs of the power struggle between intergovernmentalism and federalism in the EU, said Karel Lannoo, chief executive of Brussels think-tank CEPS.

Bishop said investors could punish any bank if regulators cut them too much slack.

There is the market discipline question. If bank x has reportedly failed to come forward with a suitable recapitalisation proposal, you can expect other banks to put their interbank deposits on hold. There is a big stick in the background, it's called a run.

A handful of banks could need to raise capital if their plans are not accepted, and may need to turn to the state for help, with analyst scrutiny on Commerzbank, MPS, Banco Popolare
, Millennium bcp , Bank of Cyprus and Marfin .

Europe has told lenders they must hold core capital of at least 9 percent of risk-weighted assets, and fill any shortfall by the end of June, to avoid a repeat of the 2008 crisis that led to massive injections of public money.

(Reporting by Mark Potter)