Sunday, November 28, 2010

higher capital requirements for banks – Less Small Business Lending

New rules to strengthen banks' capital requirements for banks is good for the economy in the long run, due to a strong economy can not function without a healthy banking system. But as useful as this sector is essential for the long term, it will place even more pressure on small businesses. The rules of going to gradually fade, but I know that it is virtually certain to make some banks are starting to limit the supply of riskier loansThe debtors, and one of the more risky for banks in small businesses. Thus lack of credit (read lack of funds for growth, recruitment, etc.) will continue to hamper small businesses in the future.

The new rules mandate that by the year 2013, the bank announced a strong Tier 1 capital for capital increase of 4 to 4.5% of assets. This would be an emergency reserve of 2.5%. So by 2013 – three years – much smaller banks, which canbehind this figure is now likely that a restriction of credit are a thing as build their Tier 1 capital. Many banks, including most of the large, already meet these requirements. But the small community banks can no longer, and that's where the most loans to small businesses is.

A second consequence of these new regulations is that they are going to have a negative impact on bank profits, which in turn loans become more expensive.Funding is the main income-generating activities in a bank. How much a bank can be assigned to their capital. taken, for example, if a bank could awarded $ 5 for every $ 1 of capital, every dollar loan from the pool is $ 5, not the income (and profits) of production activities are located. So, the options are for a bank or limit lending, because they will not suffer sufficient capital, in this case, their profits, or rather what they borrow to maintain their profits free of charge. OThis is too mean less money available for benefits or more expensive, if available.

Because of the recession, the dynamics of normal loan are the most worked against many small businesses. And the profits, sales, and banks usually do not lend to companies with sales falling and profits. But this is always the scenario that will be on the watch, even if the contractor has done a brilliant jobmaintain the current activity. So even apart from the new banking regulations, the economy has already made it difficult for small businesses to find funding, and the addition of this new level of banking rules that complicate

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