Is the Cost of the Bank Capital Rules 2 Trillion Dollars

If you ask 10 different people your will probable get 10 different answers as to why the bank stocks have fallen so far, from 20 to 30 percent and more.

What cannot be denied is that banks have to hold more capital for lending which has resulted in dilution of equity so dilution to earnings per share and earnings per share is what ultimately drives valuation of share price.

If you believe stock prices have fallen mainly as a result of the new capital rules then take ANZ for example and assume $10 per share has been knocked off the share price from these rules.

ANZ has 2.9 billion shares on issue so multiply 2.9 billion by $10 gives an amount of $29 billion dollars lost in valuation.

ANZ is one of the smaller of the big four banks in Australia but assuming the same thing has happened to the other three banks and keeping it simple multiply $29 billion by 4 gives a figure of approximately $120 billion of market capitalization (or in simple terms value) has been lost.

Australia is a small player in the world and the bank capitalization rules have been introduced in both America and Europe. The banks in America and Europe have all had their share price smashed by 20 to 30 percent as well as the Australian banks.

Let’s assume that the Australian banks represent 1 20^th of the total banks affected by the new rules.

Take $120 billion and multiply it by 20 gives the amount of $2,400 billion dollars or in other words $2.4 Trillion dollars.

If the above is true this is a massive loss of wealth and a substantial cost to have safer banks.