Geman Banks need up to $141 Billion dollars in additional tier 1 capital

As we pointed out in in a previous post European Banks are in real danger of a much larger financial crisis than the US.  The simple reason is the leverage on German "blue chip" banks would make Lehman blush.  Deutsche Bank has an absolutely huge portfolio that is very exposed to small changes in asset value.  It doesn't get any better either.  Basel III is requiring 2% more tier 1 capital that will require the banks set aside more money to cover for bad losses. 

This is a losers game.  The banks don't have the money so Germany is allowing them to put in additional capital from earnings which could take up to ten years to get the additional 2% required by the regulator.   The figure adds up to $141 Billion dollars of additional capital. 

Too bad, the time that the banks would need this capital will be in the next two years.  Asset value declines, if they are going to come will come sooner rather than later.  Maybe they will do the old "extend and pretend", like they do here and then the assets won't go bad all at once, but then they are due for a lost decade`, via MoneyControl:. 
Germany's 10 biggest banks may need 105 billion euros ($141 billion) of additional capital under a revamp of banking rules designed to prevent future financial crises, the country's banking association said.

International banking regulators known as the Basel Committee will likely require banks to have a Tier 1 capital ratio of 6%, up from 4%, said the BdB banking association, whose members include lenders such as Commerzbank and Deutsche Bank.

Regulators are bumping up the amount of capital banks need to hold in an effort to ensure lenders have an array of loss-absorbing backstops that can be used in case of a downturn.

Buffers for capital conservation of an additional 2% and a countercyclical capital buffer of 2% more are also likely to be applied, the BdB said on Monday.

The Tier 1 ratio and each of the buffers probably would be composed of 80% of top quality or "core Tier 1" capital, which consists of equity capital and retained earnings, BdB said.


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