World’s biggest banks face new multi-billion capital demands

Tim Wallace
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THE BIGGEST banks in the world could face another round of capital raising after Mark Carney warned some have been underestimating the risks on their books.

In the wake of the financial crisis lenders have had to increase their equity capital buffers by $500bn (£322bn) as part of a plan to give themselves a cushion which is intended to prevent them collapsing in another economic downturn.

But even that appears to be too little. The size of that cushion depends on their own estimates of the risks they are taking, and regulators have found banks making wildly different estimates of the riskiness of very similar assets.

As a result, the Financial Stability Board, headed by Carney, and the Basel Committee are looking at ways to make the risk weighting process more standardised.

That is expected to begin with more transparency on the process, pushing banks to publish more information on their calculations.

It is likely to be followed by floors being put on the risk weights of certain assets, limiting how low they can be weighted by banks.

It comes after the Bank of England warned UK lenders were underestimating their risk-weighted assets, and so underestimating their capital positions by up to £50bn.