A few days ago I posted an article, which can be found here, setting out why banks needed to up their game in terms of developing a plan to manage the current crisis, otherwise they faced the imposition of regulations and higher capital requirements that would be bad for them and bad for their economies. Well both Barclays and Deutsche just got a nasty surprise.
As described in this Reuters story, Crackdown on Risks Hit Barclays, Deutsche, the two banks are being told that they need to substantially improve their capital position. Barclays intends to raise all of £5.8 billion in equity and dispose of up to £80 billion in loans. Deutsche has already raised EUR5 billion in debt and equity and intends to shed up to a massive EUR250 billion from its loan portfolio.
Yet, there is much more to come as Spanish and Italian banks for example are quite likely to receive even more stringent demands to improve their capital from the regulators. Indeed, it is more than likely that the entire European banking system will be desperately in need of more capital and will look to reduce assets to meet the imposition of the new regulatory guidelines.
As such, at a time when European economies are struggling to recover, the continent’s banks are being made to reduce their lending to businesses. Needless to say, this makes sense for no one—not the banks, not the businesses that depend on them for financing, not the people who are looking for jobs from those businesses and certainly not Europe’s struggling economies.
With European growth about to be strangled at birth, the Chinese economy slowing and Republican politicians in the US threatening disaster over the debt ceiling, the outlook for the global economy is not good.
Banks urgently need that crisis management plan—to save not only themselves but the rest of us as well.
Jonathan Ledwidge is the author of the book Clearing The Bull, The Financial Crisis And Why Banks Need A Human Transformation (iUniverse).