Bank profitability 'will be severely hampered' by capital rules

31 August 2011

Profitability at the top banks in the world could be seriously hampered by the introduction of new capital rules, it has been claimed.

Consultancy McKinsey - founded in 1926 - warned that lenders will struggle to maintain returns when the requirements are implemented, with profits likely to rise to no more than 11 per cent.

The organisation suggested revenue could dip by as much as two-thirds at the world's top institutes unless action is taken to combat the problem.

In its report, the company stated: "In some businesses, a portion of the higher regulatory costs may successfully be passed on to customers."

It explained the new rules are likely to be phased in through 2019, but the calculations have been made from the point of view of them coming into effect immediately.

Banks looking to weather this period may therefore wish to conserve capital and increase efficiency in an effort to remain profitable, the report added.

By Gary Cooper

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