US banks 'set for equity capital shortfall'

22 November 2010

America's leading banks could face a significant reduction in income from equity capital when new regulations come into force, it has been claimed.

A Financial Times report has revealed that a new study from Barclays Capital suggested that the top 35 US financial institutions are likely to be left with a shortfall of between $100 billion and $200 billion when the Basel III laws are introduced.

"These shortfalls are entirely manageable," said BarCap capital advisory group head Tom McGuire. "The more difficult question is what affect the new rules will have on the cost and availability of credit and bank profitability."

Under the terms of the Basel reforms, the qualification of tier one capital will be adjusted and banks will be compelled to step up their risk adjustment mechanisms across a range of operations.

In a speech last month, Bank of England governor Mervyn King described Basel III as a "step in the right direction", but warned that further restrictions may be necessary over the next few years.

By Asim Shah

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