MADRID (Reuters) - The euro zone's top banks should deal with potential capital shortfalls revealed by ongoing financial health checks swiftly to avoid market disruptions, European Central Bank Executive Board member Sabine Lautenschlaeger said on Friday.
Lautenschlaeger, the ECB's representative at the new European banking watchdog that is being set up under the auspices of the ECB, said it would be of "utmost importance to respond quickly, stringently and consistently when significant shortfalls" were revealed at the end of the checks in October.
"Any banks still facing a capital shortfall will be asked to submit capital plans shortly after we announce the results of the comprehensive assessment," Lautenschlaeger said in a text of a speech in Madrid.
"But I have to admit I expect banks with relevant capital shortfalls to have their solution ready before we publish the results. It is the only way to avoid unnecessary market uncertainties."
Banks should first and foremost fill capital gaps using market-based methods, such as retained earnings, new issuances of common equity, suitable strong contingent capital and sales of selected assets at market price, she said.
A reduction in risk-weighted assets due to the validation and roll-out of appropriate internal models to additional portfolios should not be eligible to address a capital shortfall, unless these had already been planned, she added.
The ECB is putting the euro zone's largest lenders through a thorough review to uncover hidden losses on their balance sheets before it takes over as their supervisor in November.
Banks have not been shy to complain about the additional workload, but Lautenschlaeger said there was no way around it.
"Even if we pare down our data requests to the essentials, we will still request tremendous amounts of data," she said.
"We need the data to do this job correctly. We need to stretch banks' and our own resources to the limit, not only to drill down to the detail, but also to allow for comparability."
(Reporting by Paul Day in Madrid, writing by Eva Taylor; Editing by John Stonestreet)