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Cash rules won’t stop wholesale market

Former Edeus chief executive Michael Bolton says a threefold increase in capital requirements for risky lenders will not deter banks from wholesale funding models in the future.

The Turner review says the FSA will demand more and higher-quality bank capital, with at least three times as much capital required to support “risky trading activity” in the wholesale markets. It hopes that by demanding so much of UK banks dealing in these markets, it will “simplify and derisk the securitised credit model”.

But Bolton says he is surprised that the FSA only wants three times more capital: “This will certainly not mean the end for wholesale lenders like Edeus or GMAC-RFC. Capital requirements were so low in the past, even three times the capital will still make it an attractive market.”

Bolton says at the moment the wholesale markets remain frozen so until this situation eases, the additional capital requirements will be largely irrelevant.

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