Bank capital rules 'the tip of the iceberg'

17 September 2010

New rules requiring banks to increase their minimum tier one capital from two per cent to seven per cent are just the tip of "the iceberg" for banks, it has been suggested.

While financial institutions must comply with the regulation by 2019 or face restrictions on pay and bonuses, data submitted to the Basel Committee on Banking Supervision states that the real capital amount will be closer to ten per cent, reports the Financial Times.

This is because banks will be required to subtract items such as retained earnings, some tax credits and minority investments from equity from their capital calculations.

Bob Penn, attorney at Allen & Overy, told the Financial Times: "The deductions are definitely the iceberg here.

"The impact is going to vary colossally from country to country and bank to bank."

Jean Claude-Trichet, president of the European Central Bank, said earlier this month that the introduction of the new legislation should make the financial sector more stable in the long term.

By Gary Cooper

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