BANKS need to double their core capital in order to comply with Basel III, according to KPMG’s annual benchmark report on UK banks.
The report warns that despite a recovery in profits (see chart above) and a marked drop in impairments across the board, new capital and liquidity requirements will throw up barriers to better returns.
It points to data showing that 90 "group one" banks would have to have raised £577bn in 2009 in order to comply with Basel III, making capital-raising a top priority for 2011.
In addition, KPMG estimates that under the FSA’s stringent new liquidity regime, £600-£700bn is now “tied up in liquidity buffers” in the UK.
The report also warns that despite attempts to coordinate internationally, “tensions and competing priorities between nations” will result in an “unlevel playing field” for banks on a range of vital issues, including capital requirements, remuneration and structural changes.
Banks are also having to shift their funding sources towards retail deposits, which are regarded as more “sticky” and stable. But the competition for deposits has narrowed interest margins.