Europe's banks must find 114.7 billion euros of extra capital, more than predicted two months ago, to make them strong enough to withstand the euro zone debt crisis and restore investor confidence.

Europe's banking watchdog, confirming a Reuters exclusive earlier on Thursday, said the capital shortfall across 71 banks was almost 8 percent higher than the 106.4 billion euros ($142 billion) estimated in October, telling banks in Germany, Italy, Austria and Belgium to find more cash.

Banks will look to fill any shortfall through rights issues, shrinking loans to customers, selling assets or cutting dividends or pay for staff. National governments may have to bail out any lender unable to find the cash.

German banks need to find 13.1 billion euros, more than double the 5.2 billion estimated in October, the European Banking Authority (EBA) said. Commerzbank needs 5.3 billion euros and Deutsche Bank needs 3.2 billion.

Spanish banks need to find an unchanged 26.2 billion euros, including 15.3 billion at Santander and 6.3 billion at BBVA.

The average core capital of EU banks, excluding those in Greece, was just over 9 percent at the end of September, not far from the average for their top U.S. peers.

But Europe has been criticized for less effectively stress testing its banks than the United States did in 2009.

That is mainly because European governments have not forced weaker banks to capitalize, lacking the power of the Federal Reserve, which immediately provided the funds to shore up U.S. lenders to revive investor confidence.

European governments now face the prospect of having to plough more money into lenders struggling to balance a weaker economic backdrop against tougher regulation.

Germany's Commerzbank stood by its commitment to avoid taking more help from Berlin, which would tip it nearer to full nationalization.

We stand by our intention not to make use of additional public funds, Eric Strutz, finance director, said in a statement.

German Finance Minister Wolfgang Schaeuble said he expected banks to meet their commitments by mid-2012.

In arranging the recapitalization everything possible is being done to avoid giving the wrong incentives to reduce business, he said. In particular there are no grounds for trying to improve capital ratios by selling sovereign bonds.

In all, some 31 of the 71 banks tested need extra capital. They have until January 20 to present their plans and need to fulfill the capital requirements by end-June, the EBA said. Several banks have taken action to improve capital since the end of September.

The EBA's recapitalization plan is part of a three-pronged approach that also deals with sovereign debt exposures and improving access to funding. The aim is to restore confidence without crimping lending in a fragile economy.

The European Central Bank said on Thursday it would start offering banks liquidity funding for 3 years for the first time ever, to try to head off a credit crunch.

EU leaders are meeting on Thursday night at a high-stakes summit aimed at agreeing a plan to defuse the crisis, with France and Germany pushing for rule changes to enforce stricter budget discipline in the bloc.

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For graphics on European banks: http://link.reuters.com/qux33s

For graphic on deleveraging: http://r.reuters.com/bag45s

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NOT MANY CASH CALLS?

The EBA said banks should have core Tier 1 capital of at least 9 percent of risk-weighted assets, which exceeds the 7 percent minimum world leaders have agreed to phase in from 2013.

Europe's banks may need to tap shareholders for less than 30 billion euros to plug the hole, analysts have estimated.

Greek banks have been told they need an extra 30 billion euros of capital, but this should be covered by an existing program of aid, while 9 billion euros of the shortfall in Spain will be met by debt that converts into equity.

BNP Paribas, Societe Generale, UniCredit, Commerzbank and other banks are reducing loans, an alternative to raising equity, which is costly at present due to depressed share prices.

That has sparked fears of tighter credit hurting economic recovery. Europe's banks could deleverage by up to 3 trillion euros in the next two years, or by 4.5 trillion euros over the next 5-6 years, analysts at Morgan Stanley estimate.

The EBA said it will limit deleveraging banks can do to meet targets, saying national regulators could exclude it from the calculation. Banks should first try to raise funds, retain earnings, reduce bonus payments and other liability management measures.

Banks in France will need 7.3 billion euros, down from 8.8 billion in October and banks in Italy will need 15.4 billion euros up from 14.8 billion. Austrian banks need 3.9 billion euros up from 2.9 billion and Belgian banks need 6.3 billion up from 4.1 billion. British banks, as previously, do not need any extra capital.

($1 = 0.7468 euros)

(Additional reporting by Steve Slater, Huw Jones and Sarah White in London, Alexander Huebner in Frankfurt; Editing by Andrew Callus/Mike Peacock)

Germany BNP Paribas