The European Commission will announce new rules based on internationally-agreed guidelines on banking capital approved in December 2010 by the Basel Committee on Banking Supervision, the so-called Basel III Accord.
The EU executive will ask lenders to increase the amount of core capital they must hold to stave off insolvency from 2% to 7% of their assets. Overall, banks will need to raise about €423 billion by 2019 to comply with Basel III and the Capital Requirements Directive (CRD) IV, according to a draft proposal.
In addition, bank assets' value will be weighted according to how risky they are and the definition of capital that qualifies as core will also be tightened.
In the EU, the rules will apply to 8,350 banks approximately, while in the US only around 20 banks will have to comply with the new capital rules.
Today's announcement will be the fourth revision of the bloc's Capital Requirements Directive after the European Parliament approved CRD III early this summer.
"We have never had EU laws on liquidity before," an EU source said in praise of the new rules.
Leading to more instability?
Lenders are worried that the new rules will lead to less, not more financial stability. Banks have long argued that higher capital rules will squeeze lending to small and medium-sized enterprises.
The European Savings Banks Group has previously warned that the new rules should not apply to all lenders large, small, regional and international, but to those that are systemically relevant and have a critical mass of financial activities at home and abroad.
Stress tests presented last week - which highlighted that eight lenders have a combined capital deficit of 2.5 billion - included some of the criteria under CRD IV, such as which kind of assets qualify as part of a bank's total capital.
A German bank which disagreed with the use of Basel in the test pulled out two days before the results were published on 15 July.
The lender held a form of capital, called non-voting capital, which will no longer count towards total assets under the new regulation.
Though the Commission is set to announce the rules with a view to enforcement as soon as possible, they will likely face resistance once member states and the European Parliament are asked to vote on them later this year.
Spain, the UK and Sweden have already heavily criticised the new requirements, as they argue that many banks which have received state aid are tied to national budgets and that governments should have some discretion over how stringent capital requirements are.