Big banks failed to meet Basel III in 2011

27 European lenders would have been short €242bn in capital

Twenty-seven of Europe’s biggest banks would have been short of a combined €242bn in capital if tough global bank safety rules had kicked in last year, new research from the European Banking Authority shows.

The pan-EU regulator found that if the new, tighter “Basel III” regulations were applied to the banks’ June 2011 balance sheets – rather than being phased in over the next six years – 56 per cent of Europe’s 48 biggest banks would fall short of the 7 per cent core tier one capital ratio that will be required.

The 2011 EBA data also suggest that EU banks have a long way to go to achieve the other Basel III requirements. The banks currently have only 70 per cent of the liquid assets they will be required to hold by 2015, a collective shortfall of €1.2tn that must be plugged with easy-to-sell holdings such as gilt and other top-quality bonds.

The capital figures showed little change from a similar exercise based on 2009 data, which found the banks would be short by a collective €263bn.

But much has changed since mid-2011. Prodded by tougher stress tests and upheaval in the eurozone bond markets, many banks in the 27-nation bloc have reduced their capital needs by shedding non-core assets, cutting lending and converting some capital that would not count under the Basel III rules into more acceptable instruments.

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