A report released Thursday by the Boston Consulting Group (BCG) forecasts a "two-speed" banking system to come, with major banks in developed countries, and especially the U.S., stuck in low gear.
"There's a strong correlation between [economic] development and banking revenues," said Lars-Uwe Luther, a BCG partner in Berlin who was one of the study's authors.
And "given the high leverage for consumers in the U.S., the demand for credit is limited."
Even after unprecedented intervention by the U.S. government to support the economy and the U.S. banking industry, U.S. bank shareholder returns lagged those of every other significant banking market last year, except Japan's.
The report said leverage and capital requirements proposed by the Basel Committee on Banking Supervision would require hundreds of billions of dollars in new equity and further erode profitability and shareholder returns.
The consulting firm estimated that overall Tier 1 capital ratios of North American banks would drop from 11.1% to 4.5% and the average in Europe would drop from 9.9% to 4.8%.
BCG does not break out data for individual institutions in its sample — "most of those banks are our clients, so we don't want that," Luther said — but the firm estimated that the rules would require the banks to raise $280 billion to $650 billion in total equity if adopted as proposed.
At the upper end, that would amount to an average of more than $20 billion each.
If there was good news for U.S. institutions in the report, it would be that few large American banks rely on hybrid capital to the same extent as their European counterparts.
This allows them to sidestep the impact of some of the Basel proposals and could even provide a competitive advantage for some through steadier funding.
Inversely, however, large U.S. mortgage servicers could be expected to take a big hit to their capital levels as "intangible" assets lose their Tier 1 status. (For reference purposes, Bank of America Corp. values its servicing portfolio at $19.5 billion).
That the markets' initial reaction to the Basel proposals in December was muted indicates either that investors believe the eventual rules will be toned down or that they "had yet to understand the impact of the regulations," the report said.