Of Special Interest
- Digital wallet spend in Europe & North America to increase by 40% in 2019, finds study
- Juniper forecasts mobile money transactions will exceed 200 billion by 2024
- Europe’s big bank problem: too much capital is trapped in the US, says Scope
- Banks can save the world from climate change, says former UN climate chief
- Research by NatWest reveals gender divide over attitudes to saving
- Later-Life lending market set to almost double in the next 10 years, finds report
- Barclays/Cebr report challenges nation to think differently about wealth
- Fifth of UK investors looking to debt investment, new research reveals
- Regtech will play a more important role in PSD2, says Mitek
- Banks turn to Fintech partnerships to improve customer experience, finds Fraedom
- New industry code to tackle fraud must deliver, says Which?
- New TTF report highlights loss of trust in financial services
- Arxan highlights financial app vulnerability epidemic
- SAS asks whether banks really need to choose between operations and innovation
- Which? raises alarm as almost 1,700 free ATMs become fee-charging
- Financial wellness affects half of peoples’ mental or physical health, finds report
- Study finds traditional financial institutions embrace Fintech disruption
- Grass is greener for environmentally friendly businesses, finds Barclays
- Prospective homeowners would consider a 40-year mortgage to escape renting, finds Santander
- Millennials’ needs are changing the face of banking industry, says new report
- FS is putting consumer data at risk by failing to protect mobile apps, says Arxan
- A lack of belief in their ability holds 28% women back in work, says Cambridge & Counties
- ‘Which?’ reveals Scotland has lost over a third of its bank branches in eight years
- Next downturn unlikely to be as bad as 2008, according to S&P
- FCA reveals findings from first cryptoassets consumer research
- US consumers favour single mobile app for banking and payments
- Banks suffering major IT shutdowns every day, ‘Which?’ reveals
- The US will be a key offshore centre in 2019, says GlobalData
- Debit industry changes markedly in 10 years of the Debit Issuer Study
- UK's ‘Big Five’ face ‘too big to compete’ as small challengers secure stellar returns
- Banks as vulnerable now as before crash, says new study
- Leverage ratio a constant conundrum for European and US banks, says SNL
12th July 2019
Europe’s big bank problem: too much capital is trapped in the US, says Scope
The conditional non-objection to Credit Suisse’s US capital plan was the only (minor) glitch for European banks in recent US stress tests, which are now confronting a different issue: they are now materially over-capitalised in the US. For the large European banks, the DFAST and CCAR tests were important, given the size of their US businesses, but only relatively so.
“While the US operations of each of the European banks stress tested are material, their home markets and domestic supervisors are key and more important,” said Pauline Lambert, executive director in the banks team of Scope Ratings. “Stress tests are a useful exercise as supervisors and management teams are considering downside scenarios. Yet, they do not capture very real but more difficult-to-assess risks such as a cyber-attack or governance issues.”
The Fed noted that while it did not object to Credit Suisse’s US capital plan, it had required the firm to address certain limited weaknesses in its capital-planning processes. “For Credit Suisse, the weakness was related to assumptions used to project stressed trading losses. Positively, the Fed felt that this could be resolved in the near term,” Ms Lambert added. The bank said it fully expects to remediate the issues by the 27 October deadline.
All the European banks demonstrated that their US operations were resilient under the stress scenarios although the projected impact on their capital varied. Meanwhile, their projected minimum capital positions compared well to US peers.
In fact, with regard to the projected minimum CET1 ratio under the severely adverse scenario, Credit Suisse, Deutsche Bank, Barclays and UBS (in that order) scored significantly higher than the large US bank holding companies and were all in the top five (the other being Canada’s TD Bank).
“The level of capital in Deutsche Bank’s US businesses is reassuring on the one hand but raises questions on the other,” said Dierk Brandenburg, team leader of the banks team at Scope Ratings. In a stress situation, the question is how easily capital can move to where it is needed. The concepts of internal MREL and TLAC aim to address this but they are still being implemented. As seen with HSBC, banks have not found it so simple to upstream capital from their US businesses to the group level.
“Investors would appreciate more clarity from management about how their US operations need to be capitalised and at what levels,” Mr Brandenburg added.
Adversely stressed ratios – including CET1 capital, Tier 1 capital and Tier 1 leverage – for Barclays, Credit Suisse, Deutsche Bank and UBS all came out at multiples of required minimums.