The full impact of the new global bank capital rules announced at the weekend is likely to be 30 per cent tougher than the headline ratio suggests, according to regulators and industry participants who have studied private banking data.
The data model the impact of earlier rule changes approved by the Basel Committee on Banking Supervision narrowing the definition of what banks can count towards core tier one capital ratio. On Sunday, the committee ordered banks to raise their minimum core tier one capital from 2 per cent to 7 per cent of their risk weighted assets by 2019 or face restrictions on pay and bonuses.
But the banks will also have to subtract items such as goodwill, some tax credits and minority investments from equity and retained earnings. The aim is to make this key measure of capital reflect the equity that would be available to absorb losses in a crisis.