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Business model

Business model

All banks will face shifts in the relative attractiveness of different types of exposures as a result of changes in risk weightings and the impact of the output floor.

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Business model

All banks will face shifts in the relative attractiveness of different types of exposures as a result of changes in risk weightings and the impact of the output floor. Some specific areas of business may become significantly less attractive, with an impact on the cost and availability of these specific products and services. This will have an adverse impact on some borrowers and other bank counterparties, and in turn on the wider economy.

Some banks will face higher capital requirements that cannot be met without either issuing or retaining additional capital or reducing risk weighted assets – just as European banks in aggregate followed both these paths in order to meet the tougher capital requirements imposed under Basel 3 and corresponding EU legislation from 2010 onwards. The higher cost of funding for these banks will be accentuated by the introduction of higher minimum requirements for loss absorbing capacity over much the same time period. This will be reflected in a higher price and reduced availability of bank products and services, again with implications for the wider economy.

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