More capital not less RWAs October 5, 2012 at 12:59 pm
From a Citi research note ‘UK Banks and the Quantum of Capital’:
The FPC’s last meeting recognised that “some actions which boosted the resilience of individual banks could adversely affect near-term credit availability, for instance if requirements to increase capital ratios provoked deleveraging focused on UK lending”. To mitigate this risk, the FPC recommends banks reduce non-UK lending assets and increase their levels of equity capital. For the FPC, more capital in absolute terms could help fulfill its dual mandate, while higher capital ratios alone can be achieved by de-leveraging and this may not fulfill its dual mandate.
It is thinking like this that is (for better or worse) creating the ROE problem we discussed this morning.