Four of the UK’s largest banks could be forced to tap shareholders for more cash to beef up their reserves or issue convertible bonds after global regulator the Financial Stability Board (FSB) set stricter minimum capital ratios.
Barclays (BARC), HSBC (HSBA), Royal Bank of Scotland (RBS) and Standard Chartered (STAN) will have to hold between 16% and 20% of their risk-weighted assets in cash or convertible bonds. That could be as high as £20 for every £100 on their loan book, adjusted to reflect the risk.
The FSB has identified 30 global banks that are so large their collapse could impact on the wider financial system. The idea behind the Total Loss-Absorbing Capacity (TLAC) list is to avoid the need for future tax-payer bail-outs.
The measures mean shareholders not taxpayers will bear the brunt of another bank failure. Money allocated for dividends could be used to strengthen the balance sheet.
The TLAC is scheduled to come into effect in 2019 and sets a much higher threshold than the 7% buffer required under the Basel III initiative.
However, the four banks’ prices barely moved on the announcement (10 Nov) highlighting that the news was expected or many believe they already have sufficient buffer-building plans. HSBC, the UK’s largest bank, currently has a core tier ratio of 13.6%, while the figure is 10.2% for Barclays. RBS has a common equity tier 1 ratio of 10.8%, while Standard Chartered has 10.7%.