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Bank Capital

Posted By James Bianco On November 25, 2009 @ 9:00 am In Think Tank | Comments Disabled

Bank Capital [1]

  • The Financial Times – Lex:  Banks’ capital [2]

    Repeat after me: banks need more capital and better quality capital. The post-crisis regulatory mantra has been accepted almost universally. But the tricky process of determining what that means is just beginning. It is likely to mean further capital raising by banks globally – not just because, as the head of the International Monetary Fund said on Monday there are substantial bank losses still to be revealed. Capital itself remains a moving target. There are two basic questions to consider on regulatory capital: what should go into it and what goes on top of it? The first has thus far garnered more attention. Loss- absorbing capital, consisting of common equity and reserves, is in favour while more complicated hybrid structures will be subject to limits. However, varying approaches to the second question – the type of risk-weighted assets that capital is used to support – can make comparisons between banks almost meaningless.

Comment

Regarding the highlighted part above, see the story in the block above. The Federal Reserve is doing the Treasury’s dirty work in getting banks to repay TARP funds.  This will effectively reduce banks’ capital.
As the next set of tables and charts show, bank capital has been reduced since the credit crisis started.  Banks have taken more losses than capital raised.
banking112409 [3]


capitalpie1124091_big [4]

<Click on chart for larger image>

losspie1124091_big [5]

<Click on chart for larger image>

  • The Financial Times – S&P raises fears over health of some banks [6]

    [6]A study by Standard & Poor’s, one of the world’s leading credit ratings agencies, has raised questions over the financial strength of some of the biggest banks ahead of new rules that could require them to raise more funds. The analysis by S&P showed that HSBC is the best capitalised bank in the world, while Switzerland’s UBS, Citigroup of the US and several of Japan’s biggest banks are among the weakest.   The ranking of 45 of the world’s leading banks will unnerve investors, highlighting once again the capital shortfall that institutions still need to make up over the coming years. Although some banks will be able to top up capital through retained profits, analysts expect a string of rights issues from weaker banking groups as they try to raise tens of billions of dollars. S&P’s risk-adjusted capital (RAC) ratios – a measure of balance sheet strength – foreshadow the new capital ratio regime expected to be set by the Basel committee on banking supervision early next year.


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2009/11/bank-capital/

URLs in this post:

[1] Bank Capital: http://www.arborresearch.com/biancoresearch/?p=21124

[2] Lex:  Banks’ capital: http://www.ft.com/cms/s/3/a12f0f8a-d841-11de-8b04-00144feabdc0.html

[3] Image: http://www.ritholtz.com/blog/wp-content/uploads/2009/11/banking112409.PNG

[4] Image: http://www.ritholtz.com/blog/wp-content/uploads/2009/11/capitalpie1124091_big.PNG

[5] Image: http://www.arborresearch.com/biancoresearch-files/SubscriberArea/newsclips/2009/11/losspie1124091_big.gif

[6] S&P raises fears over health of some banks: http://www.ft.com/cms/s/0/d9944da0-d863-11de-b63a-00144feabdc0.html

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