Basel III

The Story……

Since the banking collapse, banking standards have been raised across the EU to reduce the risk of such a financial bomb going off again. The key measure has been to force banks to increase the cash reserves it holds to meet ‘issues’.

 

The science bit……these guidelines (known as Basel III) require banks to hold capital resources of at least 7% of their ‘risk-weighted assets’.

 

The Prudential Regulation Authority (PRA) is responsible for monitoring and recording this as part of banking regulation. So, you can imagine the ‘stir’ that has been caused when they have reported that Britain's top banks / building societies need to fill a £27.1 billion hole in their balance sheets to meet it’s reserves.

 

So……is your glass half empty or half full?

 

Half Empty......

RBS and Lloyds face the biggest shortfalls in their capital requirements……both part owned by ‘us’.

 

RBS was the regulator's main cause of concern, accounting for £13.6bn of the total. Lloyds Banking Group accounted for £8.6bn. The need for capital reserves will only delay any sale of these banks and prolong the prospect of any financial return for our ‘investment’. 

 

Half Full......

The regulator is doing its job……identifying the issue and publicising the results. Box ticked. The amount of cash reserves a bank must hold does not have to be implemented until 2019. However, knowing the current issues allows banks to plan to fund the shortfall. Box ticked.

 

For what it is worth, my glass is ‘half full’ on this……it can only be a good thing bringing the issue to light. However, £27.1 billion is a huge amount to find before banks will offer cheaper / simpler money to get the Private Sector and housing market moving again.

 

The financial constipation continues......