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November 22, 2010 at 10:31 AM
The biggest U.S. banks will be short between $100 billion and $150 billion in equity capital after the new Basel III global bank regulations are imposed, with 90% of the shortfall concentrated in the biggest six banks, according to Barclays Capital.
The Financial Timesreports that the Barclays’ study assumes the banks will need to hold top-quality capital equal to 8% of their total assets, adjusted for risk.
This 8% tier-one capital ratio, a key measure of bank strength, provides a one-point cushion against falling below the effective global minimum of 7% set in September by the Basel Committee on Banking Supervision.
The paper says that the Basel III reforms will hit banks in two ways – by gradually tightening the definition of what counts as tier-one capital; and by forcing banks to increase the risk adjustment for big swathes of their businesses.
The Times notes banks can respond by increasing their capital through retained earnings or equity issuance or they can cut their risk-weighted assets through sell-offs and by cutting back on risky business lines.
