Global regulators softening bank capital rules

Seventeen years on from the global financial crisis, regulators are cutting red tape for their banks in a bid to keep lenders competitive and stimulate their economies.

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The Trump administration is leading the charge, including with measures that will reduce the amount of capital lenders need to set aside. Lowering capital requirements is worrying some observers that the US has triggered a global rowback from regulations designed to keep financial systems safer, just as chatter about market bubbles and financial stability risks intensify.

So how do bank capital requirements in the major markets stack up, and which lenders might emerge winners?

THE GLOBAL LANDSCAPE

At the highest level, each country’s regulators should align with the Basel regulatory regime agreed after the 2008 global financial crisis. That’s designed to ensure supervisors worldwide apply similar minimum capital standards so lenders can survive loan losses during tough times. It suggests a level playing field.

But in practice there is lots of wiggle room, as the different approaches to implementing the latest rules — the “Basel III Endgame” — show.

The European Commission and Bank of England (BoE) have delayed implementation of key parts such as those governing banks’ trading activities, while they wait to see what the US does.

THE US VS EUROPE

Capital ratio requirements for banks in the euro zone, Britain and the US look similar on paper.

The Federal Reserve has a core equity tier-1 ratio (CET1) — the most common measure of capital — ranging from 10.9% to 11.8% once some add-ons are included for Wall Street banks such as JPMorgan, Citi and Goldman Sachs.

Lenders in the euro zone such as Deutsche Bank, Santander and BNP Paribas need, on average, to hold a minimum CET1 ratio of 11.2%, according to the European Central Bank (ECB).

The BoE’s financial policy committee last month lowered its system-wide estimate of capital requirements by 1 percentage point (ppt), to an equivalent CET1 ratio of around 11%.