Bank capital calls added to instability, says BIS Calls by European regulators for banks to hold more capital exacerbated concerns over the health of the eurozone's financial sector and led to fears of a squeeze in lending to businesses and households, the Bank for International Settlements said on Sunday. The BIS, often referred to as the central bankers" bank, said the requirement, announced last October, for the region's largest banks to buttress their capital buffers and raise their tier one capital ratios to 9 per cent by June of this year had destabilised the system by bringing fears of a drop-off in lending and a rise in asset sales "to the forefront of financial market concerns." The funding strains that emerged in the second half of last year had "fuelled fears that European banks would be forced to sell assets and reduce lending, thereby weakening real economic activity," the BIS said. The new regulatory measures had "added to those fears." Eurozone banks sold assets and cut some types of lending, notably those denominated in dollars and those that attracted higher risk weights, in late 2011 and early 2012. The organisation's latest quarterly review found that credit extended by eurozone financial institutions fell by about 0.5 per cent in the final quarter of 2011. However, the impact was largely offset because other lenders, asset managers and bond market investors took over the business of European banks. The European Banking Authority, the London-based umbrella body of European Union banking regulators which is behind the recapitalisation exercise, said at the end of last year that 30 of the region's largest banks needed to raise a total of €115bn in fresh capital to meet the requirements. The BIS, which houses the Basel Committee on Banking Supervision, the body responsible for the far more stringent Basel III supervisory framework, has led calls for banks to hold more capital in the wake of the global financial crisis. However, under Basel III, banks would have been given more time to meet the additional requirements in full . The BIS praised the EBA's statement in December that explicitly discouraged banks from shedding assets to meet the 9 per cent capital target. It also applauded the European Central Bank's move to provide additional liquidity to the financial system through its two three-year longer term refinancing operations, which took place in December and at the end of last month and have provided more than €1trn of loans to banks in the region. The LTROs were, according to the BIS, behind the recent recovery in asset prices, bank funding conditions and the revival of activity in credit markets. The decision by the big central banks to cut the cost of use of their dollar swap lines was also noted to have had a favourable impact.