$638 Billion Is a Lot of Money

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$638 Billion Is a Lot of Money

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1Bretzky1
abr. 13, 2012, 1:20pm

$638 billion is the amount of money that the Basel Committee estimates that the world's 103 largest banks were undercapitalized by according to the Basel III regulations that will start going into effect in January 2013. The new rules require banks to hold a minimum of a risk-weighted 7% of their assets as capital.

The good news from this report is that the average capitalization of these 103 banks was 7.1%, which means that a number of them are in a position to reduce their capitalization ratio in the interest of lending more money. But at a time when economies are decidedly sluggish, especially in Europe, what's the likelihood that those banks that are overcapitalized per the new Basel rules will reduce their capitalization level at the same time that those banks that are undercapitalized will be increasing theirs? Not high I'd say.

Hopefully the sluggishness in lending that has been seen over the last year or so is in large part due to banks trying to increase their capitalization to meet the new rules and they are making good progress toward that goal. If not, 2013 could get really scary.

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