THE WORLD’S 29 largest global banks will need to raise an additional €444.6 billion ($566bn) in new capital or shed about $5.5 trillion in assets by 2018 to meet the new tougher Basel III bank capital standards, a new study by Fitch Ratings has found.

The additional capital would represent a 23 per cent increase in what the banks had at the end of 2011, and is roughly equivalent to three times their combined annual earnings, according to the report published yesterday by Fitch’s macro credit research arm.

The Fitch estimates are the first to try to measure the full impact of the Basel III bank reforms plus the extra capital surcharge for “global systemically important financial institutions ”.

It suggests that the 29 GSifi banks still face significant hurdles if they are to meet the higher standards by 2018.

Because the Basel requirements and the Sifi surcharge are calculated as a ratio of capital over risk-weighted assets, banks can meet the requirements in three ways – by retaining earnings, issuing equity or shrinking their balance sheets.

Many analysts assume most institutions will do a combination of all three.

US banks are expected to be hit particularly hard by the part of the reform package that increases the relative capital requirements for risky activities, while European banks will suffer more from tighter definitions of what counts as capital.

The Fitch estimates of the capital shortfall are bigger than those in earlier studies, including one published in April by the Bank for International Settlements (BIS), which suggested that 103 large banks, including the GSifis, needed to raise €486 billion, or roughly 1.4 time earnings.

However, the BIS study was based on June 2011 balance sheet information rather than year-end – and it did not include the GSifi surcharge, which increases capital requirements for the GSifis from 7 per cent of risk-weighted assets to between 8 and 9.5 per cent. – (The Financial Times)

THE BIG BANKS: WHO'S WHO

The 29 Global Systemically Important Financial Institutions

Bank of America

Bank of China

Bank of New York Mellon

Banque Populaire CdE

Barclays

BNP Paribas

Citigroup

Commerzbank

Credit Suisse

Deutsche Bank

Dexia

Goldman Sachs

Group Crédit Agricole

HSBC

ING Bank

JP Morgan Chase

Lloyds Banking Group

Mitsubishi UFJ

Mizuho

Morgan Stanley

Nordea

Royal Bank of Scotland

Santander

Société Générale

State Street

Sumitomo Mitsui

UBS

Unicredit

Wells Fargo

Source: Financial Stability Board