European banks may need more than 100 billion euros ($135 billion) to withstand the sovereign debt crisis, Ireland estimated on Saturday ahead of a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy to work out how to recapitalize the lenders.
The falling value of banks' holdings of government debt from Greece and other euro zone periphery states has already provoked the implosion of Belgian lender Dexia, adding urgency to the Merkel-Sarkozy talks.
"There is a high risk that this crisis further escalates and broadens," German Finance Minister Wolfgang Schaeuble told German paper Frankfurter Allgemeine Sonntagszeitung in an interview released in advance of publication on Sunday.
Germany and France have so far been split over how to strengthen shaky lenders and fight financial market contagion that may follow a possible Greek default.
Paris is keen to tap the euro zone's 400 billion rescue fund, the EFSF, to recapitalize its own banks, while Berlin is insisting the fund should be used as a last resort.
The International Monetary Fund (IMF) has said European banks need 200 billion euros in additional funds.
Irish Finance Minister Michael Noonan said the capital needed to bolster banks' cushions was likely to come from a variety of sources but the total bill would be large.
"I think there is general agreement that it will be significantly in excess of 100 billion (euros)," Noonan told reporters on the sidelines of an economic forum in Dublin.
"I know that some of the big German banks that I was talking to personally intend raising money on the market so it will be private funding. Other banks would like to avail of the EFSF fund. Other banks will rely on their sovereign governments to provide the capital so there is going to be a range of ways of doing it," he said.
Regulators worry that forcing a raft of major lenders to take state aid would not be the best use of Europe's limited capital resources, while banks fear than singling out only some lenders for extra support could heighten market worries about weaknesses at individual banks.
German newspaper Frankfurter Allgemeine Zeitung on Saturday cited financial sources as saying France's five-biggest lenders would agree to take 10-15 billion euros in funding from the state but also wanted to see Germany's No. 1 lender Deutsche Bank plump its capital cushion.
But a senior French banking source shot down the idea that French banks could be pushing for state aid, saying the Frankfurter Allgemeine Zeitung report was baseless.
"I don't know what game the Germans are playing... This is wishful thinking," the source told Reuters, asking not to be named.
Deutsche Bank Chief Executive Josef Ackermann is against any role for the state in his own bank's capital position and has ruled out a capital increase....
Banks' need to gird their capital bases is also leading some to merge, such as Spain's No. 5 retail bank Banco Popular, which launched an all-share bid for its smaller rival Banco Pastor on Friday.