Early interpretations of Basel III may have excluded a key point that will increase pressure on banks to hold more tier one capital than they imagined, according to the Financial Times.
Before, the headline number increase of 2 per cent of tier one capital rising to 7 per cent by 2019 was considered the central threat. But now that number may rise as a result of excluding what might previously have been considered tier one capital.
But the banks will also have to subtract items such as goodwill, some tax credits and minority investments from equity and retained earnings. The aim is to make this key measure of capital reflect the equity that would be available to absorb losses in a crisis.
And that could mean a real increase in tier one capital from 2 to 10 per cent instead, putting further pressure on banks to raise new funds.