As Europe continues to debate several measures aimed at more strict regulation of the financial industry and with the Basel Committee seeking to wrap up discussions on new international banking standards, the number and severity of the proposed measures may come with a cost to the economic recovery.
Basel III Would Boost Banks Tier 1 Capital to 9 Percent
Draft proposals from the Basel Committee on Banking Supervision would require banks to hold nine percent Tier 1 capital, a sharp increase from the present four percent requirement, according to a Reuters report. The panel is set to meet on Sept. 7, 2010, to discuss Basel III and bring it to a conclusion.
German Banks May Need to Raise Billions
The Federal Association of German Banks has warned that the country’s 10 biggest banks could need to raise as much as €105 billion in capital under Basel III, according to The Wall Street Journal. The association is warning that if proposed regulations are too aggressive, they could derail the economic recovery. “Whoever goes too far here will jeopardize the economic recovery and the positive developments on the labor market,” said Hans-Joachim Massenberg, deputy chairman of the association.
Financial Taxes
Elsewhere, European Union finance ministers will meet on Sept. 7, 2010, to discuss ways to protect taxpayers in the event of a banking crisis. The officials will try to reach a consensus on an annual levy on financial institutions that would go toward the creation of a safety net to cover future losses. The UK, Germany and France are working together to introduce a bank tax early next year, and other EU nations are expected to agree to a coordinated approach, in principle. Coming to an agreement on the details, however, likely will prove more challenging.
European Banks Will Test Bond Market
In the midst of new regulations will come the real test. European financial institutions need to refinance about €225 billion in debt during the next few years, which will test the region’s bond market. Deutsche Bank strategists estimated the banks will need to raise €70 billion worth of debt and currency this month. “Risk appetite is returning as investors search for yield and second-tier issuers are launching deals,” said Mauricio Noe of Deutsche Bank. “The real question is whether third-tier issuers are able to access the market over the coming months.”
Gregg D. Killoren
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