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The Knimbies who say No

Banks Given 6 Years To Recapitalise

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Thought this might be worth a look

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10220261/Bank-of-England-gives-lenders-six-years-to-plug-121bn-black-hole.html

Most of the financial black hole - £120bn - is in the UK’s 25 biggest banks and building societies that each hold assets of at least £100bn.

The findings come in a 414-page consultation paper by the Prudential Regulation Authority (PRA) that focuses on the implementation of the European version of Basel III capital requirements.

The PRA also claimed that an unknown number of investment banks face a shortfall of up to £29bn. These include US giants Goldman Sachs and JP Morgan, which both have large operations in the UK.

It is believed that the largest lenders face an annual cost of up to £9.5bn in order to comply with the European rules, with investment banks facing bills of around £40bn.

The PRA has called on banks to hold a minimum common tier one capital ratio equivalent to 4.5pc of risk-weighted assets. Next year the lenders will have to hit a 4pc core tier one capital ratio target, with the extra 0.5pc expected in 2014.

“Well capitalised and resilient firms are crucial for ensuring financial stability and supporting UK growth,” said Andrew Bailey, PRA chief executive.

In the wake of the financial crisis, regulators across the world have been pushing banks to increase the amount of capital they hold as a buffer to future financial problems.

Last month the PRA revealed that eight of Britain’s biggest lenders - including Barclays, Royal Bank of Scotland and Lloyds Banking Group - had a combined core capital shortfall of £27.1bn.

However, the European Union wants banks to have more protection.

On Tuesday, Barclays announced plans to plug a larger-than-expected £12.8bn capital hole. The bank will raise £5.8bn from shareholders, as well as a further £2bn through the sale of bonds convertible into shares.

Here's the (414!) page consultation document. I've not read it. Perhaps a skim through later is in order.

http://www.bankofengland.co.uk/pra/Documents/publications/policy/2013/implementingcrdivcp513.pdf

Makes a mockery of the political situation brewing where the Govt. is keen to get the banks off the public balance sheet before the election. Of course, the election after next will be looming just after the Basel III standards should be met which seems ripe for some political interference to relax them again if lending is suffering.

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Having read some of the comments on the Telegraph website, I do not have great hopes for this thread. Hardly any of them seem to understand the topic or the new requirements.

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Remember, that £121 bn shortfall will have to filled by you and me in one way or another.

And the requirements aren't even all that stiff. Banks have successfully batted most of them away.

Indeed.

If we want them to be safe they should have a maximum 10:1 or preferably 5:1 leverage ratio. And none of this risk-adjusted crap either since we *know* they are gaming it and that their risk is vastly higher than they pretend.

A much lower leverage ratio would of course result in much lower profitability, but that can be paid for by slashing salaries and bonuses to the same level as other professional level careers, such as that of doctors or engineers.

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First job after Obama was re-elected was to water down Basel rules.

Then Sir Merv got on the case.

banks will be allowed to include corporate bonds, some shares and high-quality residential mortgage backed securities in their permitted stocks of liquid assets. This goes against the grain of central banking and regulatory orthodoxy. In particular, the inclusion of mortgage-backed securities will be seen by some as odd, since these proved to be wholly illiquid and unsellable in the summer of 2007.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=186496&st=0

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Having read some of the comments on the Telegraph website, I do not have great hopes for this thread. Hardly any of them seem to understand the topic or the new requirements.

Those bloody London bankers eh!

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Indeed.

If we want them to be safe they should have a maximum 10:1 or preferably 5:1 leverage ratio. And none of this risk-adjusted crap either since we *know* they are gaming it and that their risk is vastly higher than they pretend.

A much lower leverage ratio would of course result in much lower profitability, but that can be paid for by slashing salaries and bonuses to the same level as other professional level careers, such as that of doctors or engineers.

But how would they service their eye-wateringly huge mortgages on a civilian's stipend?

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Remember, that £121 bn shortfall will have to filled by you and me in one way or another.

And the requirements aren't even all that stiff. Banks have successfully batted most of them away.

Not entirely correct that we have to fill it. The banks will have a choice of either doing less business i.e. de-leveraging, or raising capital from investors. Some will come from retained profit, but again that mainly hits investors rather than the customer.

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