Europe’s top banking regulator on Thursday started to re-examine the strength of the region’s banks, modeling a big writedown of all peripheral Eurozone sovereign debt. The exercise, conducted by the European Banking Authority (EBA), could potentially identify capital shortfalls across the banking system of as much as Euro200bn ($266bn). The EBA, which is mid-way through a two-day crisis board meeting designed to assess the potential hit of mass sovereign restructurings, will use market values, to set "haircuts" on banks’ sovereign holdings, according to the Financial Times. The regulator is also closely involved in talks with European officials and governments over mechanisms that could be used to forcibly recapitalise banks, enabling them to cope with sovereign defaults. Many banks are facing severe funding pressures due to market worries about their exposures to government debt from Greece and other peripheral euro zone countries. Commenting on the announcement, European Commission President Jose Manuel Barroso said " We are now proposing member states to have a coordinated action to recapitalize banks and so to get rid of toxic assets they may have."