The EBA will use banks' figures at the end of September 2011 to calculate their capital and sovereign debt positions.
The €106bn figure acts as an estimate from figures released at the end of June, with the EBA expecting to disclose the final amount of necessary capital during November 2011, it said.
Banks should raise capital by going to private markets, retaining their profits and substituting hybrid instruments for higher quality capital.
They will also be expected to withhold dividends and bonuses in order to reach the target, the EBA said.
However firms must avoid using excessive leverage to raise their capital levels to contain the potential impact on the real economy, it added.
As a last resort, government backstops should be made available if the bank is unable to reach the higher capital figure.
"The objective of the capital exercise is to create an exceptional and temporary capital buffer to address current market concerns over sovereign risk," the EBA said in a methodological note.
"This buffer would explicitly not be designed to cover losses in sovereigns but to provide a reassurance to markets about banks' ability to withstand a range of shocks and still maintain adequate capital."
International Monetary Fund managing director Christine Lagarde hailed the measures as a "major step forward". "Restoring growth depends on a financially sound banking sector and reinforcing the banks' capital buffers is key," she said on Wednesday.
"This should be achieved mainly through the provision of additional capital and not by lower lending within or across countries."
The news comes alongside an agreement for banks to write-down 50 per cent of the value on their Greek debt holdings and a deal to bolster to the eurozone's bailout fund to around €1tn ($1.4tn).
Commenting afterwards, the European Banking Federation said that the extra capital requirements put a "very substantial demand" on the bloc's banks.
"Banks will of course take the necessary steps to adapt to the extra capitalization requirements", EBF president Christian Clausen said.
The €106bn figure acts as an estimate from figures released at the end of June, with the EBA expecting to disclose the final amount of necessary capital during November 2011, it said.
Banks should raise capital by going to private markets, retaining their profits and substituting hybrid instruments for higher quality capital.
They will also be expected to withhold dividends and bonuses in order to reach the target, the EBA said.
However firms must avoid using excessive leverage to raise their capital levels to contain the potential impact on the real economy, it added.
As a last resort, government backstops should be made available if the bank is unable to reach the higher capital figure.
"The objective of the capital exercise is to create an exceptional and temporary capital buffer to address current market concerns over sovereign risk," the EBA said in a methodological note.
"This buffer would explicitly not be designed to cover losses in sovereigns but to provide a reassurance to markets about banks' ability to withstand a range of shocks and still maintain adequate capital."
International Monetary Fund managing director Christine Lagarde hailed the measures as a "major step forward". "Restoring growth depends on a financially sound banking sector and reinforcing the banks' capital buffers is key," she said on Wednesday.
"This should be achieved mainly through the provision of additional capital and not by lower lending within or across countries."
The news comes alongside an agreement for banks to write-down 50 per cent of the value on their Greek debt holdings and a deal to bolster to the eurozone's bailout fund to around €1tn ($1.4tn).
Commenting afterwards, the European Banking Federation said that the extra capital requirements put a "very substantial demand" on the bloc's banks.
"Banks will of course take the necessary steps to adapt to the extra capitalization requirements", EBF president Christian Clausen said.
The European Banking Authority announced late Wednesday night plans for banks to sharply build up their capital buffers against sovereign debt exposures.
As a key part of a eurozone deal agreed by leaders in Brussels, banks will have to obey a core tier one capital ratio of 9 per cent by the end of June 2012, collectively raising €106bn ($148bn).
Banks in the UK, Ireland, Finland, Hungary, Luxembourg, the Netherlands and Malta will however not be required to raise any additional capital.
Under the package, by 25 December banks below the required capital levels will be required to submit plans to their national supervisors detailing how they plan to reach the target figure.
Accordingly, Greek banks will be required to raise €30bn ($42bn). Spanish banks will need to find an extra €26.1bn ($36.5bn), and Italian banks requiring €14.8bn ($20.7bn) and Portuguese banks €7.8bn ($10.9bn).
Global Financial Strategy
As a key part of a eurozone deal agreed by leaders in Brussels, banks will have to obey a core tier one capital ratio of 9 per cent by the end of June 2012, collectively raising €106bn ($148bn).
Banks in the UK, Ireland, Finland, Hungary, Luxembourg, the Netherlands and Malta will however not be required to raise any additional capital.
Under the package, by 25 December banks below the required capital levels will be required to submit plans to their national supervisors detailing how they plan to reach the target figure.
Accordingly, Greek banks will be required to raise €30bn ($42bn). Spanish banks will need to find an extra €26.1bn ($36.5bn), and Italian banks requiring €14.8bn ($20.7bn) and Portuguese banks €7.8bn ($10.9bn).
Global Financial Strategy
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