Basel attendees have effectively raised the tier one capital ratio from 2 to 7 per cent. The package, popularly known as Basel III, sets a new ratio of 4.5 per cent, but also sets a buffer of 2.5 per cent, setting an effective buffer of 7 per cent. (Banks with capital ratios falling between 4.5 and 7 per cent will face restrictions on paying dividends and discretionary bonuses.) Changes will not be entirely phased in till 2019.
Had the stress tests required 7 per cent, rather than 6 per cent, 17 more European banks would have failed under the adverse scenario with sovereign shock (see column T1_AdvS, below). These are almost exclusively PIIGS banks – except for one Slovenian bank, and two German banks (Norddeutsche and Deutsche Postbank). Read more