What new risk rules are forcing Barclays and Deutsche Bank to raise capital?

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New Risk Rules Prompt Capital Increases for Barclays and Deutsche Bank

Barclays and Deutsche Bank have announced significant capital-raising measures and asset disposals, including a US$9 billion rights issue by Barclays, in response to stricter risk regulations. These actions underscore the ongoing efforts by European banks to comply with evolving regulatory requirements, a process that began in the aftermath of the 2007-09 financial crisis. Regulators in the UK and Europe are concerned about the systemic risk posed by institutions deemed "too big to fail."
Capital Requirements in Response to Risk Exposure

Barclays faces a new British regulatory curb on banks' risk exposure, necessitating an additional £12.8 billion in capital within the next year. To address this, the bank plans to raise £5.8 billion from shareholders, reduce its loan book by £65 billion to £80 billion, and sell £2 billion in bonds. This move has led to investor concerns that other European banks may be compelled to undertake similar actions.
Deutsche Bank's Asset Adjustments and Provisions

Deutsche Bank is also taking steps to meet new bank safety rules, earmarking an additional €250 billion in assets that could be reduced. The bank has also set aside €630 million to cover claims and settlements, which contributed to it missing its quarterly profit expectations. These measures come as European banks continue to navigate the long-term implications of the 2007-09 financial crisis and the "too big to fail" issue.
Broader Regulatory Landscape and Sector Impact

The intensified regulatory environment, aimed at bolstering bank safety, is also impacting other European financial institutions. Italian mid-sized banks are anticipated to require additional equity to counter capital pressures stemming from economic recession and rising non-performing loans. Furthermore, European banks are addressing legacy issues from regulatory inquiries, including those related to benchmark interest rate manipulation and the mis-selling of mortgage-backed securities, with Barclays and UBS having already paid nearly US$2 billion for their involvement in interest rate manipulation.

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What new risk rules are forcing Barclays and Deutsche Bank to raise capital?

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