EBA set to opt for pragmatism over publicity As European bank supervisors meet in London this week to review banks" progress in achieving new capital requirements, they are likely to opt for pragmatism over publicity. The European Banking Authority, the umbrella body of regulators across the European Union, in December said 30 of the region's largest banks needed to raise €115bn in fresh capital to reach a higher threshold target for core tier one capital - a key measure of financial strength - of 9 per cent. Andrea Enria, the body's chairman, remains convinced that Europe's banks must be buttressed with stronger capital buffers. The EBA has identified potential gaps in some of the recapitalisation plans lenders have put forward, amid a bleaker economic outlook than many had forecast, people familiar with the process said. When the Financial Times reported on Monday that the EBA was preparing to tell some banks that their plans to hit the 9 per cent ratio by June, were not credible, it was viewed by some observers as an attempt by the regulator to reassert its authority amid mounting scepticism. The truth, however, is more nuanced. Having only opened its doors last year, the EBA's stress tests have been met with open hostility by some national regulators, particularly in Spain, Italy and Germany. Now, amid signs of friction with the powerful European bodies that spawned the authority, such as the European Central Bank, the regulator is increasingly keen to placate its critics, according to bank supervisors. People familiar with its thinking insist that even if the EBA executive believes some banks" capital plans to be aggressive and unachievable, it will seek to resolve the issues quietly, behind the scenes, and may ultimately have to back down in some cases if national regulators are determined that their banks are healthy. The biggest problem area in the plans the regulator has already reviewed relates to over-optimistic profit expectations, people familiar with the process said. However, even here, bankers point out that groups that have taken substantial funding from the ECB, in its unprecedented three-year liquidity scheme, will benefit from big margins, given the knock-down 1 per cent rate payable for the money. Banks" capital plans have relied less than expected on risk-weighted asset "mitigation" - seen by critics as manipulation - and projected asset sales, though some groups have been over-aggressive in these areas, too, regulators said. "The overwhelming majority of measures outlined in the plans appear to be, in aggregate, in line with the spirit and the letter of the EBA's recommendation," the EBA said on Monday. The regulator has somewhat more flexibility now than it did when the 9 per cent requirement was announced because prices of some European sovereign bonds have stabilised and the cost of insuring them against default has dropped. The €115bn recapitalisation plan included buffers based on end of September 2011 prices for sovereign bonds, but the authority said at the time it could alter the requirements if the European Systemic Risk Board agreed that the pressures on sovereign bonds had eased. Even if the EBA is sceptical of an individual bank's plan, it does not have direct authority to order a change. That power rests with the bank's national regulator. While EBA bylaws do allow for its governing council to find that an individual country is out of step with EU rules, it is not clear how that authority would apply to the current situation. Additional reporting by Megan Murphy