Banks to rejig risk calculations to raise capital
EUROPEAN banks are relying on rejigging the way they calculate the riskiness of their balance sheets to “raise” nearly a quarter of the capital demanded of them by the European Banking Authority (EBA), the regulator revealed yesterday.
In its preliminary assessment of lenders’ capital-raising plans, which they must execute by June, the EBA has revealed that 23 per cent of the capital banks plan to “raise” will come from tweaking risk calculations.
Because they are required to meet a target ratio of nine per cent capital to risk-weighted assets, lenders can get some way to the goal by recalculating the riskiness of their assets rather than boosting absolute capital levels.
The rest of the €116bn in total capital they must raise will come from converting bonds into equity, hoarding earnings and rights issues, the EBA said.
The regulator also claims that the programme will not hit growth, calculating its GDP impact at less than one per cent. But that is “after taking account of the measures arising from EU State Aid decisions”, meaning that some deleveraging is being mitigated by government action.
The EBA said it has yet to assess the feasibility of the banks’ plans.