Wednesday, January 06, 2010

Bank regulation and lending

The FT reports on a study by Barclays Capital that assess the impact of new banking regulations on bank lending. The latest BIS proposals suggest that banks, particularly those that are deemed 'too big to fail', hold more capital and more closely align deposits and lending.

BarCap's expectation that regulators will cap the 20 groups' loan-to-deposit ratios at 100 per cent would mean that all banks, except the Swiss, would have to increase deposits dramatically if they are to avoid a politically damaging shrinkage of their lending. The worst hit would be Dexia, which could have to shrink lending by nearly 70 per cent, and Danske Bank, where the contraction would be 55 per cent.

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