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June 27, 2013

Proposed Guidelines Could Require Banks to Raise Billions in Capital

Big European banks may be required to raise billions of euros in new capital, making them less risky but potentially putting them at a disadvantage to their American rivals, under guidelines issued Wednesday by an organization that coordinates global bank regulation.

The Basel Committee on Banking Supervision, which includes regulators from the United States, Europe, Japan and other major economies, issued a revised proposal Wednesday on how banks should calculate their so-called leverage ratios, a measure of how much of other people’s money lenders use to conduct business.

If put into force, the new rules would probably fall hardest on large European institutions like Deutsche Bank and Barclays, which tend to use a high proportion of borrowed money to do business or have large portfolios of derivatives.

American banks have faced controls on leverage for decades, while most European banks have not. As a result, Europe’s banks may have to struggle harder to comply with the new rules. ‘’This will essentially be the first time European banks will be subject to a leverage ratio,’’ said Andrew S. Fei, a lawyer in the New York office of Davis Polk who specializes in bank regulation.”

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Read full New York Times article here

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