The new rules, which are due to come into force in 2019, aim to reduce differences in how much capital banks set aside to cover risks from holding stocks, bonds and derivatives. Banks say the rules will require them to sharply increase their capital, making them less willing to make markets as long as they have not raised the extra cash. Responding to concerns, some Basel member states agreed to delay introducing the code. Basel issued an update on Tuesday outlining the impact of the revised rules on 89 large banks in 20 countries.
It said the capital needed to cover trading risks would rise by 52 percent for big banks and double that for smaller ones. But, given trading was a small portion of banking activities, overall capital would only need to rise by 2 percent, it said. "Generally, banks with less material trading book positions have in some instances reported significant increases in market risk capital (MRC) requirements, but the relative impact of those changes on overall MRC may be relatively small," it said.
Singapore, Australia and Hong Kong have already said they would delay introducing FRTB until at least 2020. A US Treasury report also recommended a delay and the European Union is under pressure from banks to follow suit. Basel has said there may be some tweaks to FRTB. It has yet to respond to the delay announcements.
In its update, Basel also reviewed how major banks were positioned to meet Basel III capital and liquidity requirements, which are due to come into effect in 2019. A sample of international banks showed the top 30 banks, which it called "globally systemic lenders", already met or exceeded Basel III requirements, Basel said.
It said 26 of these banks had to issue so-called "bail-in bonds" by 2022 that would be written down in any future crisis to replenish their capital and avoid taxpayer bailouts. It also said 12 of the banks had a combined loss-absorbing shortfall of 116.4 billion euros ($139.37 billion) in December 2016 had bail-in bond rules been in full effect then. That was down from 318 billion euros in June 2016, Basel said.
Separately, Basel said European banks accounted for 60 percent of extra core capital raised by the world's top lenders since 2011, but only generated 20 percent of profits after tax, compared with 30 percent in the Americas. The EU's European Banking Authority said on Tuesday that average core capital at European banks had risen to 13.4 percent by December 2016, up from 12.8 percent in June that year.
Copyright Reuters, 2017