The European Banking Authority hopes its three-pronged approach raising core capital levels, addressing sovereign debt exposures, and ensuring funding guarantees will restore confidence without crimping lending in a fragile economy.
However, signs were emerging that the amount of actual capital that will need to be raised will be far lower than the 106-billion-euro headline figure.
Euro zone leaders were also trying to reach a deal in Brussels on how much of their holdings in Greek debt should be written down, an exercise that could overshadow the attempt to bolster weak banks.
The 106-billion-euro shortfall dwarfs the 2.5 billion euros of capital needed by the seven banks that failed the EBAs stress test of 90 lenders in July.
But it is only about half of what the International Monetary Fund and some analysts have said is needed to shore up banks properly.
Greek banks will need an extra 30 billion euros of capital, the EBA said, though it added that this was covered by an existing programme of aid, which appeared to reduce the total amount of fresh capital needed.
Banks will have to hold core Tier 1 capital of at least 9%. The capital raised, which for some will also entail a top-up temporary buffer to cover sovereign debt risk, will have to be of the highest quality, said the banking watchdog.
But Spain won a concession to allow the inclusion of convertible bonds owned to calculate the level of capital, which may cut its capital raising bill.
Its banks had needed to raise over 26 billion euros and Italys lenders need 14.8 billion euros, both more than most analysts had forecast. The capital needs for other countries was broadly in line with analysts expectations.
The EBA did not disclose how much individual banks would need. In Spain, Santander and BBVA are likely to need to bolster capital, alongside Bankia and smaller cajas.
The inclusion of debt that can be converted to common equity means the Spanish banks can use the 9 billion euros of convertible capital they already hold to meet just more than a third of the shortfall identified by the EBA, a Spanish government source told Reuters.
Other big name banks that might need to add capital include Italys UniCredit and Germanys Deutsche Bank.
The Bank of France said BPCE needed 3.4 billion euros, Societe Generale 3.3 billion euros, and BNP Paribas 2.1 billion. Frances other big bank, Credit Agricole did not need fresh capital, it said.
Banks are expected to withhold dividends and bonuses as part of their efforts to meet the new capital hurdle, which exceeds the 7% 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 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.
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.
Greek govt may buy stakes in some banks, says Papandreou
Greek Prime Minister George Papandreou said the government will likely buy shares in some Greek banks as a result of a planned writedown of the countrys debt and a European accord to recapitalise lenders. Probably some of the bank shares will be nationalised, Papandreou told reporters on Thursday in Brussels after a 10-hour European summit. After restructuring, we will then take it back out on to the market.
Papandreou didnt give any details on the banks that would be targeted in any nationalisation program or the size of any potential shareholdings. European leaders persuaded bondholders on Thursday to take 50% losses on Greek debt. Lenders are expected first to tap the market to make up any capital shortfall before resorting to public funds from either governments or the euro regions bailout fund.
Greek banks will come out of this with a very clear picture, being reorganised in a way so that they can be viable banks with no problems as far as the Greek debt risk, Papandreou said.