Biggest banks close capital hole by £83bn

Tim Wallace
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THE WORLD’S biggest banks took another giant leap towards hitting regulators’ capital targets, according to numbers out yesterday from the Basel Committee on Banking Supervision.

The international group of finance authorities said the 100 so-called Group 1 banks – the largest in the world – were €115bn (£97bn) short of the seven per cent capital target at the end of 2012.

That is around €82.9bn, or 41.9 per cent, closer than they were six months earlier.

The €115bn shortfall is less than one-third of the €419.4bn profits those banks made in 2012, meaning the target is well within reach by the 2019 deadline.

Of those big banks, 90 are above the seven per cent level, while nine are between 4.5 and seven per cent and one is below the 4.5 per cent level.

The next group of banks, the 116 Group 2 banks studied, are €25.6bn away from the target.

That gap for smaller banks is less than a single year of profits and so means they are well on track to meet the capital target.

Of those, 95 have a core tier one capital level of above seven per cent, 14 more of above 4.5 per cent, and seven below 4.5 per cent.

Targets set under the Basel III agreement are designed to make the banking sector tougher and more able to absorb losses in another economic downturn.

The largest banks have the highest targets, creating a buffer of seven per cent of risk weighted assets, plus an extra 2.5 per cent buffer on the basis that they are systemically important and could harm the whole sector if they collapse.

Regulators have been criticised for the capital rules, with sceptics arguing banks have to reduce lending to build the buffers. As a result the report can also be seen to indicate this problem is nearing its end, as banks approach the target.