A majority of big US and European banks should have no problem meeting the new global bank capital standards, analysts think. They should be able to accomplish this without having to raise a vast amount of new equity. These new standards have been accepted with relief, though the entire sector still has a long way to go before normalcy is upon it.
Sunday saw the announcement of the requirements by the Basel Committee on Banking Supervision. Regulators have mentioned that they are still working on many other possible proposals that could layer additional capital requirements on to the biggest banks, and in countries where there is a developing asset boom.
After several months of negotiation, central bankers and regulators of 27 countries came to terms on a deal to set the global minimum standard for core tier one capital (basically equity and retained earnings) at 7 per cent. This is a combined minimum of 4.5 per cent along with a 2.5 per cent buffer. The regulators also set a transition period ending in the year 2018.
Most countries lobbied for a stronger standard. But after all debates and all possibilities, bankers and analysts greeted it with a mixed bag of acceptance and relief.
The head of the Capital Advisory Group at Barclays Capital, Tom McGuire, commented on the arrangement made, saying: “Based on the details we know so far, this would be manageable for most major US banks without raising equity.”
Tim Geithner, US Treasury Secretary, remarked with a positive attitude, saying: “We welcome this next step on the way to strong global financial reforms and look forward to reviewing the details of these proposed reforms to global capital requirements.”