A banking system strengthened by tougher capital rules will benefit the U.K. economy by 11.9 billion pounds ($18.9 billion) a year, according to a paper published by the U.K. Financial Services Authority.
Regulators could raise minimum capital requirements for the biggest banks by “an additional 22 percentage points” and “still produce overall positive net benefits in the long run,” five academics said in their report to the financial regulator published today.
“The benefits arise from the reduction in the probability that a systemic crisis, one which permanently reduces the level of U.K. GDP, occurs,” according to the academics, including FSA economist Zanna Iscenko. “Clearly the benefits are not observable as they represent outcomes that are not expected to occur as a result of the policy implementation.”
Global regulators’ tougher capital requirements, known as Basel III, could see the world’s biggest banks raise about $566 billion of common equity to meet rules by 2019, analysts at Fitch Ratings said today. The Basel group agreed in 2010 to more than triple the core capital that lenders must hold, as well to make them hold minimum stocks of easy-to-sell assets.
Banks can change their business models to avoid an additional capital surcharge for the biggest lenders, “possibly altering the structure of the U.K. banking system,” according to the report.
Core tier 1 capital is a measure of high-quality, loss-absorbing, reserves that banks have to hold against risky assets.