Wednesday, December 23, 2009

Bank barriers

Amidst an interesting look at new entrants to the banking industry the FT notes:
Analysts say that one of the biggest challenges for smaller banks is the onerous capital and liquidity requirements. Holding more high-quality capital – which yields low rates of interest – lifts costs, which are harder for smaller institutions to absorb, and constrains the business they can do. And new banks will have to meet these requirements upfront.

It seems that the new regulations on capital requirements will add to the scale economies associated with banking and make it harder for smaller players to break into the market.

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