Tough bank reforms would have cost $600bn
London, April 13, 2012
The world's biggest banks would have needed to find more than $600 billion if tough new capital rules to be phased in from 2013 had been in place last year, said an expert banking panel.
The Basel Committee of global regulators said if the new rules, known as Basel III, had been in force at the middle of last year, banks would have needed 486 billion euros ($638 billion) to hold core capital of seven per cent of assets, which is the target level for banks to meet when new rules come in.
The 103 biggest banks had an average capital ratio of 7.1pc based on the new rules, just enough to pass the standard, the BIS said yesterday in a review of the implications of the Basel III capital standards.
But the capital of some of those big banks would have fallen below 4.5pc, while many would have been short of the necessary standard. Basel III capital rules will be formally phased in from January 2013.
They will mean banks have to hold more capital in reserve to cover loans. The aim is to create a bigger safety net to protect taxpayers from having to bail out banks and avoid a repeat of the 2007/08 financial crisis.
The BIS assessment suggests Basel III rules could hit banks even harder than many in the industry had feared. The average of 7.1pc for the big banks under Basel III compares to an average reported core capital level of 10.2pc, the BIS said.
It said its calculation was not comparable to industry estimates, however, and the actual impact should be reduced by banks' ability to phase in implementation, the profits they make, and management changes to business models.
Profit after tax of the big banks in the sample was 357bn euros in the year to the end of last June. The biggest changes to capital are a tighter definition of what is core capital, charges for counterparty credit risk, and an increase in risk-weighting for some assets, such as in their trading book or securitised products.
Risk-weighted assets increase on average by 19.4pc under the Basel III framework, it said.
The BIS's estimated capital shortfall includes a capital conservation buffer and a surcharge for global systemically important banks where applicable. The BIS did not name the banks where the shortfalls lie.