After the global financial crisis of 2008 and 2009, most banks accepted the need for higher capital levels with grim resignation. But with the ink barely dry on the Basel III accord that defines and enshrines the new levels, European banks are facing calls to show even higher capital ratios as a result of the European sovereign debt crisis.
José Manuel Barroso, the European Commission president, last week raised the possibility of a 9 per cent core capital ratio for some banks – far higher than the 7 per cent target under Basel III. The biggest European banks are also due to face the capital surcharge of between 1 and 2.5 per cent to be applied to all “global systemically important financial institutions”.
Concerns over the adequacy of European banks’ capital have led in recent months to a tightening of liquidity. Over the summer, US money market funds withdrew tens of billions of dollars from European banks and few institutions have been able to raise medium-term debt.
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