Banks to see “systemic reduction” in profits due to increased regulation, report claims

23 November 2010

An increase in regulation will lead to banks seeing a “systemic reduction” to their profits, a new report has revealed.

A study by KPMG showed that bank liquidity is the area that will face the most pressure from the implementation of new rules.

Liquidity buffers will need to be trebled in size following the implementation of the Basel III requirements - which will raise the cost of liquidity and depress margins.

The impact of a reduction in profitability will be seen in government tax revenues, employment within the financial services industry and pension fund income, KPMG explained.

Giles Williams, partner in KPMG's Financial Regulation practice, said: “The regulatory challenge for banks continues - in Europe and the Americas in particular. With ever closer supervision looming, additional regulatory requirements for banks deemed systemically important, game-changing reforms to traded markets rules, and fast-track changes to accounting and disclosure requirements, the list of challenges only gets longer.

“Despite the language coming out of the G20 around creating level playing fields, the reality may well be different. Regulatory reform uncertainty will continue for some time yet."

The Evolving Bank Regulation report features a "Regulatory Pressure Index” which predicted that banks in the US and Europe face the biggest challenges from incoming regulation.

By Jim Ottewill

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