Two top international banking supervisors put out the utterly mundane statement that raising capital requirements for banks would not crash or even touch the global economy to any degree. It would not reduce lending and would increase stability for the system, preventing the need for future large-scale bailouts. This would be a nice bit of information to have if the Basel Committee were planning on actually forcing the banks to carry higher amounts of capital. But according to the Financial Times, they’re really not:
Big US banks should be able to meet tighter global capital requirements without having to raise substantial amounts of new equity, according to calculations by Barclays Capital.
The analysis by BarCap’s debt capital markets group estimates that the 35 largest US banks will have to come up with half as much new capital as had been expected following last month’s rewrite of proposed requirements by the Basel Committee on Banking Supervision.
Analysts at Nomura calculated earlier this month that the top 16 European banks would also gain a sizeable, though slightly smaller, benefit. The numbers are likely to revive complaints that the reforms have been softened too much in the face of lobbying by banks.
I would imagine so.
The news from Basel has been basically trending downhill for a while. The committee, under pressure from the bank lobby, changed what could count as Tier One capital, making it easier for banks to achieve the required amount without changing much of their current balance sheet. The Barclay’s analysis just provides numbers for these victories. According to them, the 35 largest banks in America would need only $115 billion in new equity or retained earnings to meet the new standards. This cuts in half the requirements that would have been necessary under the first draft of the rules. And if the capital requirements ratio gets degraded even further in the final accords, as has been discussed, to 6% from 8%, the same US banks would need a grand total of $8 billion dollars.
Same as it ever was.
Remember that the Treasury Department resisted hard capital requirements in the Dodd-Frank bill because they wanted to keep the ratios in line with international standards. In reality, it was probably because the Basel process would be even easier to game, if that’s possible, than the US Congress.
