Bank Capital Rules Could Dent Economy: StanChart CFO
Banks are faced with a stark choice as to how they deal with tougher capital regulations and the direction they choose could have a marked and possibly negative effect on the wider economy, Standard Chartered CFO Richard Meddings told CNBC Wednesday.
"Different banks will have different reactions to the emerging regulatory regime, some banks — like we've chosen today — will seek to raise capital… Other banks may choose to deleverage … other banks may chose to cut dividends," he said.
Standard Chartered announced plans to raise $5.3 billion via a rights issue in a bid to maintain its growth strategy while fulfilling the necessary changes to its capital ratios to meet Basel III requirements. The announcement is in the wake of a similar move from Germany'sDeutsche Bank earlier this month.
The new tougher regulatory framework agreed last month is designed to avoid a repeat of the credit crisis that plunged many countries into a severe recession. Banks will likely be forced to increase the level of capital they hold in reserve in comparison to their levels of debt.
The fact that the details of regulations are yet to be fully agreed means that banks have to act without knowing the full extend of their capital requirements, Meddings said.
"The emerging regulatory world is uncertain, it's quite clear that the minimum Basel III ratio is moving to 7 percent and then there are other capital buffers yet to be determined," he said.
As banks struggle to accommodate the new regulations, this could produce a wide divergence of strategies which could have a knock-on effect for the economy, according to Meddings.
"Depending what they do will vary the impact on the broader economies. Clearly the pressure to deleverage would be more negative to prospects for economic growth and recovery," he said.