Big banks to take up to $5bn hit over post-financial crisis rules
Rules set in response to the global financial crisis of 2007-8 could cost major banks as much as $200m each to implement. A report by consultancy firm Oliver Wyman indicates that the world’s largest banks have systemically underestimated just how expensive implementing these rules would be. The new regulations, set by the Basel Committee on Banking Supervision, stipulate that they must vastly increase capital holdings. Oliver Wyman’s report suggests that the rules could cost the banks affected as much as $5bn overall.

REUTERS/Arko Datta

New rules set to implemented in response to the global financial crisis of 2007-2008 could cost major global banks as much as $200 million (£165 million) each to put in place.

According to the Financial Times, which cites a report from consultancy Oliver Wyman, the world's largest lenders had initially underestimated just how expensive the implementation of rules mandated by the Basel Committee on Banking Supervision would be and are now facing huge costs.

"Last year, banks were in the early stages of costing," said Oliver Wyman’s Aude Schonbachler. "Some of them clearly misunderstood how big the effort would be."

The suggested rule that will cause the biggest hit to banks globally is known as the fundamental review of the trading book (FRTB) and concerns the way in which banks look at the risks present within their asset portfolio. The rules put forward by the committee mean that banks will have to vastly increase the amount of capital they hold in the short term. They come into place in 2019.

Oliver Wyman's report suggests that across the entirety of the banking sector, the Basel rules could cost as much as $5 billion with the biggest banks hit by the biggest costs. Estimates last year suggested that major banks would see costs of between $43 million and $129 million , but that has now increased to between $100 million and $200 million.

The Basel rules are just one segment of a massive overhaul of financial regulation designed to prevent another crisis on the scale of the 2007-08 crash ever happening again.

In November, the European Union proposed toughening capital and liquidity requirements for lenders' subsidiaries in Europe, in order to make those business units safer and weaken the wider economic impact of their failure in the event of a crisis.

The proposals, if enacted, would make it harder for banks to shift capital around their global networks, and more expensive to do business internationally

The world's regulatory environment is becoming increasingly fractured, with central bankers and regulators on the Basel Committee on Banking Supervision split on how to make banks safer going forward. European regulators are becoming more wary of US counterparts, accusing them proposing rules that benefit their own banks at the expense of those elsewhere.