With the eurozone crisis showing no immediate signs of abating, and market confidence still severely dented, the overall soundness of the global banking system is likely to remain a focus of market participants and lawmakers alike for some time.
The Banker’s Top 1000 World Banks offers an insight into the global banking system’s capital-to-asset ratios (CAR), a crucial indicator of soundness and an inverted measure of leverage.
Due to regulatory demands, banks have had to boost their capitalisation levels significantly in recent years. However, western Europe still has the lowest aggregate CAR, with 4.25%, a slight reduction from 4.28% in last year’s ranking, which equates to an average leverage of the western European banking system of 23.5. This is still very high and European regulators are doing their best to force banks to hold more loss-absorbing capital against their asset bases.
Almost all western European countries are showing a decrease in average CAR, with three notable exceptions. Irish banks have increased their CAR from 3.8% to 7.5%, thanks to major recapitalisation and an 11.93% year-on-year decrease in total assets. Meanwhile, Italian banks also saw an increase in CAR from 4.8% to 5.3%, partly as a result of Intesa Sanpaolo’s €5bn rights issue. Netherlands also saw a CAR increase, which was mainly down to a decrease of total aggregate assets of 8.7%.
The global CAR average remains stable at 5.36%, against 5.3% last year.
The Banker’s Top 1000 World Banks offer a unique insight into the global banking system’s CARs, a crucial indicator of soundness. The CAR is an inverted measure of leverage, so the lower the ratio the higher the leverage of the banking system.
