A new proposal from global banking regulators that could require banks to prop up their asset management or wealth management businesses in the face of financial stress may boost their capital requirements, says Fitch Ratings in a new report.
Proposals from the Basel Committee on Banking Supervision, which were released in mid-December, may require banks to hold capital specifically to cover the risk that they may be required to step in and provide financial support to non-bank affiliates amid financial stress, the Fitch report says.
“These additional capital requirements could prove onerous. This increases the likelihood that affected banks could lobby and resist the proposals,” the Fitch report says, noting that the proposals are most likely to impact banks with large asset and wealth management, investment fund, and securitization businesses.
“In our view, this could reduce the attractiveness of asset and wealth management as a business line, especially if banks are unable to pass on additional capital costs by increasing fees,” the report says.
Regulators’ efforts to ensure that banks hold sufficient capital can be a positive for credit ratings; but that this proposal “could include an element of double counting,” the Fitch report adds.
The Basel Committee’s consultation period on these proposals closes in March 2016.