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Newsletter January 2010: 10% capital ratios will slash equity returns by 560 bps

Simon Turmaine | January 18, 2010

NEW YORK – The strongest predictor of bank distress ahead of the 2007-09 global financial crisis was the ratio of tangible common equity to risk-weighted assets. But for all major banks to now raise this ratio above 10% – where the risk of distress is virtually zero – would cost a total $1.45 trillion and reduce the return on equity by 560 basis points.

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