Ludwig Offers Predictions on Capital Reserves

The $60 trillion dollar (or thereabouts) question today is what amount of capital will regulators eventually require of banks?

Of course, this question has many permutations to it, such as will those capital requirements stick to the general principles of Basel II or will the US capital requirements mirror global reserve mandates? But those are sticky and complicated. Eugene Ludwig, the former comptroller of the currency and the founder and CEO of Promontory Financial Group, prefers to make a more straightforward prediction on capital reserves, and here they are:

* Tangible Common Equity: 5% to 5.5%

* Tier 1: 7% to 8%

* Risk-Based Capital: 12%

“These are pretty significant numbers when you consider what they were before; risk-weighting doubles to 12%, or perhaps 10%,” he said.

Ludwig added that global banking regulators, including the US, “will continue to have Basel II,” but he noted that “Basel will go to hard numbers by yearend.”

That’s a bold prediction considering the bickering that’s gone on regarding Basel since the credit crisis started.