Bank regulators agree new capital requirements
A meeting in Basel, Switzerland could potentially change the outlook of the worldwide financial arena with news that top central bankers and bank regulators have agreed to rules on capital funding. The 27 financial authorities from around the world agreed that banks must hold 7% of assets in common equity which is a massive increase from the current 2%. This will drastically increase the support funding required for the banking industry and could lead to short-term fundraising exercises such as that launch by Deutsche Bank last week.
In theory the financial regulators around the world, together with the help of central bankers, should be able to push through these regulatory changes but ultimately governments will need to keep the financial arena on site. It is still debatable as to whether we could see some form of legal challenge or a standoff between governments and the financial arena which could potentially lead to a watering down of today's proposed changes.
Either way, there is no doubt that the banking arena which entered the credit crunch and the worldwide recession will be very different to the one that we see in the future. Whether banks will inevitably in the end move back towards previous risk/reward ratios remains to be seen.
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