In extreme, banks could end up losing 30-40% of their core capital reserves, the bank said.
However, margin expansion will continue to be hindered by competitive pricing, low investment yields and decreasing capital reserves.
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Mr Scholes favours relying less on VAR to calculate capital reserves against losses.
What they decided today will reverberate through credit markets for years to come: Banks will be required to double their capital reserves.
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The interest is gone and we are now spending our capital reserves.
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Since nearly all the SIFIs ahem, Systematically Important Financial Institutions now hold commercial-banking licenses, they have to limit their leverage and maintain adequate capital reserves.
Caijing reported that China plans to order banks to post investment products on their balance sheets, which may force banks to increase their capital reserves.
And since our capital reserves and options are limited, every small business CEO makes decisions every day that are at once as much about survival as success.
But he conceded that if the world economy had not bounced back in "three to four years' time", there was a possibility its capital reserves would be exhausted.
Instead, each category of asset should have its own risk-capital reserves, which could not be shared with other assets, even if prices had not been correlated in the past.
Additionally, banks borrow cheaply from the Fed, buy treasuries, and then park them back at the Fed as capital reserves in another subtle form of monetization, crony capitalist style.
It began by raising the capital reserves its banks had to hold, in effect removing money from its financial system, and increasing the size of down-payments required to purchase real estate.
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They will have to add to that a "counter cyclical" capital conservation buffer of 2.5%, meaning capital reserves will in the coming years have to represent 7% of their loans and investments.
As a result, it recommended that retail banks should be ring-fenced from investment banks and have their own capital reserves, so they are protected from losses made by traders on stock markets, for example.
When in 2008 their capital reserves were determined to not be as large as executives insinuated, the two publicly traded government sponsored entities were swiftly bailed out by the government and swept up into conservatorship.
According to Anne Anderson, a health-care analyst at Atlantis Investment in New Jersey, companies will have to raise premiums for employers by as much as 10% next year in order to maintain their capital reserves and investor confidence.
And one of the big causes of the great crash of 2007-8 is that over 30 years - due in part to appalling regulation - banks were allowed to reduce their capital reserves to a tiny fraction of their massive loans and investments.
In such a scenario, since local subsidiaries (Brazil, Mexico, Chile, Colombia and Peru) cannot reduce capital reserves below a certain level, we assume these subsidiaries would only lower their capital reserves up to one standard deviation above the legal minimum, to prevent potentially violating any regulatory requirements during periods of heightened volatility.
What's fascinating is that the FSA has more or less admitted that it thinks that it may have been too zealous in the way it forced banks to build their capital reserves - or at least it has in a way, because the banks would say (in fact they do say) that the FSA is still facing in two directions.
The balance sheet for the whole Eurosystem (including all the national central banks) shows almost half a trillion euros in capital and revaluation reserves.
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With its massive reserves of capital, Apple's value is now greater than the GDP of Poland.
It is understood that UK banks will not be required to raise capital to bolster their reserves.
Although banks have enough capital to increase these reserves, doing so would reduce profits, which shareholders would balk at.
The snag is that a small revaluation is likely to increase expectations of another future appreciation, attracting yet more speculative capital and swelling foreign reserves further.
Allowing loan securitizations, derivatives, and swaps to be taken off bank balance sheets was an important element in this, as were the procyclical rules on capital and loan loss reserves.
With loan demand from creditworthy borrowers weak during the recession and with banks still suffering from the financial crisis, perverse accounting rules that caused them to lose regulatory capital, and persistent banker bashing from the Administration and Congress, many banks held onto their reserves to cushion further capital losses.
Without them, much of an economy's capital is held captive on balance sheets, tied up in inventory, working capital, and balance sheet reserves.
This would put pressure on international reserves and prompt capital flight.
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Worse, adjusted for the riskiness of the banks' loans (decent credits now usually go to the capital markets), the reserves-to-loans ratio is at its lowest in 50 years.
With clarity expected, investors are pouring billions into UK waters, buying reserves and thus releasing capital for smaller explorers to keep drilling.
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