The Capital Dilemma

The European Banking Authority’s board will meet this week to discuss the credibility of banks’ measures to meet capital requirements by June 30^th.

There are concerns about nearly half of the banks’ plans. Specifically:-

·      The internal model calculations may be over optimistic in terms of the risk weight asset numbers;

·      Plans for asset sales may conflict with political plans to promote growth.

I am currently sitting in Asia where growth rather than austerity is the order of the day. Banks are being encouraged to lend (with a degree of prudence) rather than indulge in a fire sale to meet arbitrary numbers.

Difficult times call for difficult measures.