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Global banks gain from new rules
By Greg Keller |
September 14, 2010, Tuesday
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Print Edition
Print Edition
GLOBAL bank stocks rose yesterday on news that global regulators have agreed on new banking rules aimed at averting another financial collapse.
The new rules, which will gradually require banks to hold greater capital buffers to absorb potential losses, are likely to reshape the credit industry by imposing stricter discipline on credit cards, mortgages and other loans. But the requirements will be phased in over a period of years, which cheered investors.
Representatives of the United States Federal Reserve, the European Central Bank and other major central banks agreed to the deal on Sunday at a meeting in Basel, Switzerland. It still has to be presented to leaders of the Group of 20 forum of rich and developing countries at a meeting in November and ratified by national governments before it comes into force.
The agreement, known as Basel III, is seen as a cornerstone of the global financial reforms proposed by governments stung by the experience of having to bail out some ailing banks to avoid wider economic collapse.
Fears that banks will have to raise large amounts of capital, hitting their profits and shareholder dividends, depressed some bank stocks in early trading, including those of Deutsche Bank AG. But by mid-day Deutsche Bank investors had shrugged off those concerns, sending the stock up 1.4 percent.
Requiring banks to keep more capital on hand will restrict the amount of loans they can make, but it will make them better able to withstand the blow if many of those loans go sour.
Down the line consumers could see banks tighten their rules on loans and possibly impose higher banking charges as financial institutions spend the next few years building reserves to meet the new regulatory requirements.
But Teresa Nielsen, an analyst at private bank Vontobel in Zurich, said consumers could also gain. "The lower than feared minimum capital requirement and longer implementation time frame could potentially lead to banks being more open to give loans to companies and private people which again could improve the economic situation worldwide," Nielsen said.
Deutsche Bank's Chief Executive Joseph Ackermann said yesterday that he thought the Basel III package was a good one.
"I think the decisions that were taken are the right decisions, they go in the right direction, and I also believe the fact that they gave the banking industry so much time for implementation clearly reduces the effects on the real economy, which is also very positive," he said.
"So it's a well rounded good package that we fully support," he said.
The new rules, which will gradually require banks to hold greater capital buffers to absorb potential losses, are likely to reshape the credit industry by imposing stricter discipline on credit cards, mortgages and other loans. But the requirements will be phased in over a period of years, which cheered investors.
Representatives of the United States Federal Reserve, the European Central Bank and other major central banks agreed to the deal on Sunday at a meeting in Basel, Switzerland. It still has to be presented to leaders of the Group of 20 forum of rich and developing countries at a meeting in November and ratified by national governments before it comes into force.
The agreement, known as Basel III, is seen as a cornerstone of the global financial reforms proposed by governments stung by the experience of having to bail out some ailing banks to avoid wider economic collapse.
Fears that banks will have to raise large amounts of capital, hitting their profits and shareholder dividends, depressed some bank stocks in early trading, including those of Deutsche Bank AG. But by mid-day Deutsche Bank investors had shrugged off those concerns, sending the stock up 1.4 percent.
Requiring banks to keep more capital on hand will restrict the amount of loans they can make, but it will make them better able to withstand the blow if many of those loans go sour.
Down the line consumers could see banks tighten their rules on loans and possibly impose higher banking charges as financial institutions spend the next few years building reserves to meet the new regulatory requirements.
But Teresa Nielsen, an analyst at private bank Vontobel in Zurich, said consumers could also gain. "The lower than feared minimum capital requirement and longer implementation time frame could potentially lead to banks being more open to give loans to companies and private people which again could improve the economic situation worldwide," Nielsen said.
Deutsche Bank's Chief Executive Joseph Ackermann said yesterday that he thought the Basel III package was a good one.
"I think the decisions that were taken are the right decisions, they go in the right direction, and I also believe the fact that they gave the banking industry so much time for implementation clearly reduces the effects on the real economy, which is also very positive," he said.
"So it's a well rounded good package that we fully support," he said.
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