EU banks react positively after Barroso outlines solutions for eurozone crisis

Video: Courtesy of Euronews

The gains came as European Commission President Jose Manuel Barroso told the European parliament that the region "must urgently strengthen the banks." He said European Union member governments, the European Central Bank and the European Commission must coordinate efforts to recapitalize banks through private and state injections, provide full transparency on the sovereign debt exposures at all systemically important bank and introduce temporary, higher capital requirements after accounting for those government bond holdings.

Banks falling short on capital under the measures should be barred by regulators from paying dividends or employee bonuses, Barroso said.

He will take the plans to an Oct. 23 meeting of EU finance ministers, who are also studying bank recapitalizations to help ease worries over banks' ability to withstand the euro-zone debt crisis.

Bank analysts say recapitalizations should refresh investors' confidence in financial stability and could trigger a stock market rally, though bank investors could lose out from potential dilution of their shares.

Barroso didn't give any figures on exactly how much capital banks should hold against their assets, making it unclear how much capital might have to raised across the sector.

Analysts estimate it could run into the hundreds of billions of euros, depending on how banks' sovereign debt holdings are valued.

European bank shares also benefited from reports that Slovakia will likely approve the expansion of the euro zone's bail-out fund, the European Financial Stability Facility, at a second parliamentary vote on Friday.

Slovak lawmakers blocked the legislation in an initial vote Tuesday.