This echoed a study by McKinsey last year, which showed European banks will have to raise about €1.05 trillion in capital to comply with Basel III. This compares with about €600 billion for US banks. European banks will also have to find twice as much short-term liquidity as their US counterparts, and slightly more long-term funding.
What concerns bankers on this side of the pond is why, at a time when European banks need all the help they can get, European politicians and regulators are imposing an additional burden of reform on top of Basel III with such zeal? While this reform is designed to make European banks safer and insulate the economy from financial shocks, it risks unwittingly putting their sector at a competitive disadvantage.
There are even bigger concerns, however. This comes in the form of CRD3, the updated Capital Requirements Directive that comes into force at the end of this year.
Under CRD3, European banks will have to hold far more capital against their trading books – BNP Paribas estimated in a report this summer that it will increase capital held against trading by between three and four times. This is not small change. For many banks, it will increase RWAs by tens of billions of euros, with every extra euro needing to be matched by more capital.
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