Financial sanctions for past misdeeds, and policymakers’ demands for resolution plans, are keeping the pressure on global bank capital levels, says Fitch Ratings in a new report.

The rating agency suggests that “conduct costs and the need to adapt group structures to increasing regulatory scrutiny of banks’ subsidiaries as part of resolution planning will keep the capitalisation of the 12 global trading and universal banks in the spotlight.”

All of the big global banks are exposed to litigation and other conduct risks, “and further fines are inevitable” Fitch says. “We expect further conduct costs in numerous investigations, including but not limited to foreign exchange rate setting, U.S. mortgage-related matters and U.S. sanctions breaches. The nature of the alleged action in relation to foreign exchange rate setting in particular suggests fines could be material and widespread if any wrongdoing is found.”

The uncertainty about the size of these fines and potential business restrictions that could result “is now one of the biggest risks these banks face,” Fitch says; adding that sanctions that have a meaningful impact on capitalization, or materially restrict a bank’s business activities, would put pressure on ratings. “They can also indicate excessive risk appetite and weak corporate governance,” it adds.

Fitch notes that the big banks are strengthening their capital buffers, and it says that it believes “they can act quickly to restore and maintain good capital ratios.”

“The continuous raising of the capital bar also reflects a desire to remain in line with competitors,” it says, adding, “Capital strengthening and a reduction in assets and leverage should help banks manage the stricter capital requirements for subsidiaries that are increasingly the focus for regulators looking to improve the resolvability of large banking groups.”

However, it says that meeting regulators’ specific qualitative expectations in terms of resolution planning “will be challenging for some banks”. It notes that this will particularly affect European banks with U.S. subsidiaries. “Leverage ratio requirements are likely also to be a constraining factor for the nature and volume of business these banks book in the U.S.,” it adds.

Global banks are also facing the prospect of additional regulatory requirements for certain subsidiaries and holding companies in their home markets, Fitch says. For instance, UK-based banks will have to establish a ring-fenced subsidiary for retail and small business-based activities with separate capital requirements. Certain business separations are also required for the trading operations of German and French banks, it notes. And, it says that the two Swiss banks are also setting up new subsidiaries for their domestic and some of their wealth-management operations.

“The structural changes and additional requirements will consume management time and costs, are likely to keep earnings retention rates high for some time and may constrain business activities,” it concludes.