Banks unable to meet tougher leverage rules

Tim Wallace
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EUROPE’S banks would have to raise another $196bn (£116.7bn) if regulators increased the minimum leverage ratio to five per cent, according to a study by SNL Financial, published yesterday.

Under current plans banks have to meet a three per cent ratio, holding capital amounting to three per cent of their total assets.

Some regulators have argued that should rise to four per cent, and in the US some Federal Reserve bosses have called for a five or even six per cent ratio.

SNL analysts believe such a high level would push up capital needs very sharply in Europe, where some banks are more leveraged.

Deutsche Bank, which has already had a struggle to convince investors of its capital strength, would be the hardest hit, according to the study.

The analysts predict Deutsche Bank would need to raise an extra $40.17bn to hit the five per cent ratio.

Next up would be French bank Credit Agricole, with $33.32bn.

Credit Suisse would be next, needing to raise another $27.45bn to meet the higher level.

The first British bank in the list would be Barclays, which SNL Financial predicts would need another $15.58bn.

The study comes as the European authorities prepare to stress test the banks, measuring the quality of their loan books and investigating how resilient they are to any economic shocks.

The impending study has seen banks like UniCredit in Italy set aside billions of euros against bad loans made in the pre-crash era.