UK banks could need extra 50 billion pounds under 'Basel IV': KPMG
09/12/2013 | 03:13am US/EasternRecommend:
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Street level sign on the KPMG building in Downtown Los Angeles
UK banks could need an extra 50 billion pounds to deal with extra capital requirements being layered on top of the incoming 'Basel III' package of global banking regulations, consultancy KPMG warned on Tuesday.
KPMG said the introduction of a 'leverage ratio' that requires banks to hold a minimum level of capital against their total assets, and restrictions on the way banks calculate the 'risk-weighted' assets which figure in regular capital adequacy ratios could together trigger the 50 billion pounds demand.
"The outlines of ?Basel Four' are already becoming visible, five years before the technical implementation deadline for Basel Three," said Giles Williams, partner in Financial Services at KPMG. "Care needs to be taken that the banks are not being asked to do too much too soon."
In June the Prudential Regulation Authority (PRA) ordered five of the UK's biggest banks, including Barclays (>> Barclays PLC), Lloyds Banking Group (>> Lloyds Banking Group PLC) and Royal Bank of Scotland (>> Royal Bank of Scotland Group plc) to raise another 13.4 billion pounds of capital, on top of the 13.7 billion pounds they were already in the process of raising.
The demand, which was based on the banks' end 2012 positions, was triggered by a more conservative treatment of risk weighted assets, higher estimates for future losses and the introduction of a 3 percent leverage ratio.
KPMG's 50 billion pounds estimate is based on a common equity leverage ratio of 5 percent and a 20 percent increase in banks' risk-weighted assets, as regulators restrict the use of internal models that reduce risk-weighted assets, thereby boosting capital ratios.
