The greatest impact of new regulations may be felt by banks in the Netherlands. Photo: AFP

A McKinsey & Co report released this month warns that new regulations proposed by the Basel Committee on Banking Supervision could force European banks to take unconventional measures.

  • Should the regulations come into force, banks in Europe may face a capital shortfall of US$128 billion, and would need to raise more capital or shed about 800 billion euros of risk-weighted assets.
  • New standards will reduce European lenders’ common equity Tier 1 ratio, a gauge of financial strength, leaving banks short of 10.4% ratio required by regulators.
  • The greatest impact will be felt by banks in Sweden, Denmark, Belgium, the Netherlands and Ireland, where banks calculate capital needs using low default rates on their mortgage portfolios.