Tags: SP | Global | Banks | Unsafe

Evans-Pritchard: Most Global Banks Unsafe

By Julie Crawshaw   |   Monday, 30 Nov 2009 01:21 PM

Standard & Poor's says nearly all of the world's big banks lack sufficient capital to cover trading-and-investment exposure, risking further downgrades during the next 18 months unless they move swiftly to beef up their defenses, financial columnist Ambrose Evans-Pritchard reports.

"Every single bank in Japan, the U.S., Germany, Spain, and Italy included in S&P's list of 45 global lenders fails the 8 percent safety level under the agency's risk-adjusted capital (RAC) ratio," Evans-Pritchard writes in London's The Telegraph.

"Most fall woefully short."

S&P has shifted to a tougher code, Evans-Pritchard explains, and is now less tolerant and insists that banks must quadruple capital put aside to cover trading desks. S&P also is treating private-equity exposure more harshly.

“While some banks may look healthy under normal Tier 1 and leverage targets, critics claim these measures can be highly misleading since they fail to discriminate between high-risk and low-risk uses of leverage,” Evans-Pritchard notes.

“The system failed to pick up the danger signals before the financial crisis. The supposedly moderate leverage of U.S. banks in 2007 proved to be a spectacularly useless indicator.”

The China Banking Regulatory Commission has posted a warning on its Web site that it will impose "restrictions on market access, overseas investment, and outlets and business expansion," against banks with inadequate defenses against bad loans.

The country’s banks have lent a record amount of money this year in response to government urging to boost China’s economy.

China's banking laws have set the capital-adequacy ratio — the amount of capital banks must hold against their risk — at a minimum of eight percent.

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Standard & Poor's says nearly all of the world's big banks lack sufficient capital to cover trading-and-investment exposure, risking further downgrades during the next 18 months unless they move swiftly to beef up their defenses, financial columnist Ambrose Evans-Pritchard...
SP,Global,Banks,Unsafe
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2009-21-30
 

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