On Thursday, FT Alphaville wrote of a potential regulatory crackdown on Deferred Tax Assets — tax carry forwards which can make up a proportion of banks’ Tier 1 capital.
DTAs make an especially poor form of capital, since they only apply if banks are making enough money. In times of losses they’re almost completely useless and are simply carried forward until a time when (hopefully) the bank is generating enough to use them.
And on Thursday the Basel committee on banking supervision sought to fix this incongruity, by proposing DTAs be excluded from Core Tier 1 as part of its efforts to strengthen and purify banks’ capital. Also, out were pension fund liabilities.
UBS bank analysts John-Paul Crutchley and Alastair Ryan have helpfully crunched some numbers on Friday morning, to show European banks’ DTA and pension exposure.
And it looks like UK, Irish and Spanish banks are the most exposed:*
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*The Gross DTA and Pension Fund liabilities are in millions of the banks’ local currency.
Related links:
The Basel III sell-off continues – FT Alphaville
Digesting the Basel reforms – FT Alphaville
How the IRS sort-of-saved Citi – FT Alphaville
The deferred tax asset disaster – FT Alphaville