Under the new Basel III guidelines, Barclays will be required to raise at least £7 billon in fresh capital, warns city based analyst Arturo de Frias.
The new rule stipulates banks must hold more loss absorbing capital reserves, which will force banks like Barclays to increase reserves, the analyst with the stockbroker Evolution said.
The Basel III guidelines published yesterday require banks to set aside cash buffer of 7 percent to absorb loss shocks – substantially higher than was required under the Basel II regime.
Large British banks may come under additional pressure from the domestic regulators since they may be subjected to still higher cash reserve requirements since they have risky international exposures and most of them have separate investment banking arms, investing in high risk ventures.
These tough new measures may require Barclays to inject a further capital of £7 billion, he argued.
The Bank of International Settlements (BIS), the apex body that frames rules for banking operations around the world, said had the rules come into force this fiscal, globally banks would have been required to raise an eye-popping additional £490 billion to comply.
However, to facilitate the new compliance regime, BIS will enforce the law gradually; allowing banks to plough back part of their profits to build additional reserves. This may translate into lower bonuses and dividends for employees and investors, respectively.
However, experts fear that in the short-run this may force banks to raise lending rates to tide over shortage of funds available to make advances.