Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Banks Catch a Break with Long Timeline for Implementing Basel III Regulations

Companies / Market Regulation Sep 14, 2010 - 05:59 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleKerri Shannon writes: Global regulators on Sunday agreed on new banking capital requirements - known as Basel III - that were much less severe than expected, boosting global financial stocks as investors were optimistic about banks' ability to comply.

The Basel Committee on Banking Supervision agreed on new rules that will more than triple capital requirements to give banks a bigger cushion against losses. Banks will have to raise the amount of common equity they hold to 7% of assets, up from 2%.

While the increase seems steep, regulators compromised on the timeline, agreeing to start phasing in the rules by Jan. 1, 2013 and allowing eight years for full implementation. The uneven state of economic recovery deterred countries from trying to enforce the rules sooner.

"The recovery is slow and we want to move to these higher standards in a gradual way," Stefan Walter, secretary general of the Basel Committee, told The Wall Street Journal. "It's a balanced approach."

Banks will have less than five years to boost common equity reserves to 4.5% of assets, and will have until Jan. 1, 2019 to collect the additional 2.5% reserve buffer. If banks dip into the buffer amount or fail to meet the holding requirement, they would face restrictions on paying shareholder dividends and executive compensation, but would not be forced to raise cash.

The Basel Committee also will allow banks to apply government bailout funds toward capital reserves until the end of 2017.

While countries like Germany wanted to give institutions up to ten years to meet the new standards, nations that have already tightened banking regulations, like the United Kingdom and Switzerland, pushed for a five-year time line.

"The implementation period is much longer than expected, which is generous to the sector, " Credit Suisse Group AG (NYSE ADR: CS) analysts wrote in a note to clients. "The fact that the sector now has a greater degree of certainty about capital requirements going forward ought to act as a material positive catalyst. "

Besides providing a protective cushion for future crises, the rules are meant to create a more transparent banking sector. The Basel III regulations include provisions like giving incentives to banks that trade certain derivatives on open markets instead of privately between institutions, and strictly defining risk weighting to prevent banks from finding accounting loopholes.

Some banking supervisors complained that higher capital requirements and limited investment behavior would restrict lending abilities, drive up borrowing costs and reduce banks' profitability by discouraging lucrative investments.

But many experts disagree, saying the higher capital ratios usually have little bearing on bank lending and are not drastic enough to significantly change the industry - except by making it a more trustworthy operation.

"It will make banks less profitable, probably, " Joe Peek, professor of international banking and financial economics at the University of Kentucky, told The New York Times. "But it will make the system safer, because there will be more of a cushion from insolvency, so banks can withstand more of a hit and still walk away alive. "

While experts were happy to hear a decision, some think the long phase-in period is too long and makes it too easy for banks to comply. Dennis Gartman, editor of "The Gartman Letter, " called the timeline "comical. "

"If you're going to put in capital requirement increases, do it swiftly, get it done, " Gartman told Bloomberg. "A lead in of this many years is, I think, beyond belief. When you give somebody nine years to accomplish a task, normally that task never gets accomplished. "

Other economists warned that the long timeframe means supervisors will need to reevaluate the standards to make sure they are still as effective as intended in a few years to prevent another banking problem.

"I think we're going to have to be clearly careful as time wears on and the memory of all this starts to fade, that the risk management procedures…seem robust enough to fend off this kind of a problem. That's something the supervisors are going to have to work real hard at, " William R. White, chairman of the Organisation for Economic Co-operation and Development Economic and Development Review Committee, told Bloomberg.

Bank Stocks Boosted By Investor Optimism
Investors welcomed the less severe rules and pushed bank stocks higher Monday.

Australia's Treasurer Wayne Swan announced the nation's banks would "comfortably meet " the new requirements, and the Commonwealth Bank of Australia rose 1.59% on the news.

Japan's biggest bank, Mitsubishi UFJ Financial Group Inc (NYSE ADR: MTU) rose 3.56%.

Asian banks have kept higher capital ratios and are not expected to need to restructure or raise funds to meet the new raised standards.

"Today if you look at the whole of Asia, Tier 1 capital is more than 10% to 12%, " Zhu Min, special adviser to the International Monetary Fund (IMF) and former deputy governor of China's central bank, told Bloomberg. "I don't think Asian banks at the moment will go to the markets to raise a lot of capital. "

U.K. banks should also have little trouble complying. Europe's biggest bank HSBC Holdings PLC (NYSE ADR: HBC) was up 2.26% Monday and analysts said the company could boost its dividend now that there's less uncertainty surrounding capital requirements.

"We expect the market to respond positively to a more regulatory certain environment and we would expect investors to focus on capital return for those banks where we see the strongest balance sheets, " JPMorgan Cazenove analysts wrote in a report on the U.K. banking sector.

Morgan Stanley (NYSE: MS) analysts Henrik Schmidt and Huw van Steenis said Nordic banks would likely be the first to raise dividends, followed by the Swiss.

U.S. banks that might be the first to increase dividends include JPMorgan Chase & Co. (NYSE: JPM), U.S. Bancorp (NYSE: USB) and Northern Trust Corp. (Nasdaq: NTRS), according to the report.

"The largest American banks are already in compliance with the central tenet of Basel III, " and already maintain a 7% Tier 1 capital ratio, head of NAB Research Nancy Bush told The Journal.

JPMorgan rose 3.4% in trading Monday, Bank of America Corp. (NYSE: BAC) was up 2.95% and Goldman Sachs Group Inc (NYSE: GS) jumped 2.58%.

Analysts expected German and Italian banks to need to raise more funds than their European counterparts. Deutsche Bank AG (NYSE: DB), Germany's biggest lender, is aiming to raise $12.63 billion (9.8 billion euros) in a stock sale at the end of the month. Italy's banks will benefit from the eight-year time frame as they have some of the lowest capital levels among European lenders.

The details of the regulations could alter from country to country as nations adopt the rules into law.

"Every country is going to face pressure from its banking industry to interpret the rules in a way that favors their banks, " David Andrew Singer, a political scientist at Massachusetts Institute of Technology, told The Times.

The new rules need approval from the Group of 20 nations, scheduled to meet in South Korea in November.

Source :

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in