Capital rules to hammer banks’ assets – PwC

BANK CAPITAL increases proposed by regulators could force European banks to reduce their assets by €1.8 trillion if they cannot raise it by other means, PwC claimed yesterday.

“If the European banks are required to increase their capital ratio by one per cent and are unable to raise the capital to do this, they would be forced to reduce risk weighted assets (RWA) by €1.8 trillion to achieve the ratio,” said PwC director Richard Barfield.

The ongoing uncertainty over the Eurozone rescue deal makes it very difficult for banks to raise capital in the market to shore up their ratios, he warned, meaning a capital amnesty could be deployed to give banks time to bolster their capital ratios without rushing to deleverage.

A one per cent rise in tier 1 capital is equivalent to €112bn under Basel II, a €1.3 trillion reduction in risk weighted assets or €1.8 trillion under Basel III, the firm said.