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BANKING

Banks: The scramble for capital

Banks will have to operate under a stricter capital regime. While they are feverishly raising more and higher-quality capital in the financial markets, proposals put forward by regulators are not to everyone’s taste, not least the potential treatment of hybrid securities. Sudip Roy reports.

More questions than answers
An uneven playing field
Tougher trading


IT IS THE subject that lies at the heart of regulators’ attempts to strengthen the banking industry against future crises. Capital, the margin by which creditors are covered if the bank’s assets are liquidated, has become the cornerstone of the new regulatory framework that will shape the financial landscape.

The main conclusion is already clear. Following their abysmal failings over the past two years, banks will have to hold more capital, and that capital will have to be of a higher quality, especially shareholders’ equity.

Speaking at Euromoney’s Awards for Excellence dinner on July 8, Michael Geoghegan, HSBC’s chief executive, said: "I was taught, and my colleagues were taught, you can never have too much capital." Unfortunately too many banks have learnt that lesson the hard way after getting their fingers badly burnt in the financial crisis. For example, Citi’s tangible common equity was a low 2.41% of tangible assets at the end of the third quarter of 2008. Little wonder that the bank has had to rely so much on government support.