bank capital

Ralph Atkins

Banks in Greece, Portugal, Ireland and Spain account for more than two-thirds of the increase in lending to eurozone financial institutions by the European Central Bank since the summer of 2008 as many struggle to access financial markets.

Banks in the four countries have borrowed €225bn (£185bn) of the €332bn increase in lending since June 2008, according to the Royal Bank of Scotland, which compiled the information from eurozone central banks (see table). This is 68 per cent of the rise in lending, yet these countries represent only 18 per cent of the eurozone’s gross domestic product. 

Chris Giles

There is no doubt that the international wrangle over new banking regulations is hotting up. Standards for capital, liquidity and leverage are due to be settled by November and this is the big bone of contention here in Busan where G20 finance ministers are meeting. There does not seem to be a resolution in sight yet.

Everyone agrees that banking regulations need to be beefed up, but that is where consensus ends and the dissent starts. That this is difficult and threatens to blow up is clear from the delay to the higher capital requirements for banks’ trading books, which was due to be introduced in January and has now been postponed. There are disagreements over: 

Simone Baribeau

The Fed is, as I write this, holding a meeting on the December Basel committee proposals on capital and liquidity. The meeting, announced last week, comes in between normally scheduled talks, and a month after the official end to the comment period. The timing may seem unusual, but if the US central bank doesn’t hold the meeting now, it risks losing its opportunity to go on the record about its position on capital adequacy rules before the financial reform bill passes, say economists.

“[The meeting is] a response to the quickening pace of financial reform in the US Congress. And also in response to the debates going on in Europe, particularly in Germany, the Fed wants to go on record and attempt to influence lawmakers as we approach passage and reconciliation of the final reform package,” said Joseph Brusuelas, chief economist at Brusuelas Analytics. 

By Francesco Guerrera, US finance and business editor

[Roll of drums, spotlight on the New York Federal Reserve] And the answer is: 161 pages of pretty incomprehensible documents

Bonds are back on the menu for UK companies, driving an increase in gross and net capital issuance for the first time in months. Net issues of commercial paper, a form of short-term largely unsecured lending, also rose substantially within january, ending the month above zero.

A survey of CFOs in January rated credit as hard to obtain, and said that equity and bond issuance was preferable to bank loans. It may be that the increase in capital issuance is being used to pay off bank debt for the larger companies. That option, of course, is not available to smaller firms.

Norwegian banks will be overcapitalised and British banks undercapitalised under the new Basel rules.

So says research from Matrix Group, which considered the fate of European retail and corporate lending banks under the regulations.

The paper concludes that changes to bank capital under new Basel regulations will be a ‘game changer’ for the sector, and will “increase the quantum of capital in the system, improve its quality, force out complexity from balance sheets and ultimately drive down ROE”.

That seems to be a thumbs-up for the new rules, which are intended to create a safer system at the expense of shareholder return. But it’s not good news for Lloyds or HSBC, two of the three British banks studied. 

The Central Bank Governors and Heads of Supervision yesterday welcomed progress made by the Basel Committee on Banking supervision, suggesting five areas of particular focus for the banking standards expected by the end of this year.

The Group of Central Bank Governors and Heads of Supervision (“the Group”) is the oversight body of the Basel Committee on Banking Supervision and comprises the same member jurisdictions. 

Russia has lowered rates and Vietnam has raised them. This is the ninth cut since April for Moscow – they are trying to slow the appreciation of the rouble and revive lending. Hanoi has devalued the dong by more than five per cent and raised rates by a full percentage point in an effort to curb inflation. The Vietnamese move is not the start of the mooted currency war.

Rising bank failures pushed the FDIC rescue fund into debt as of September 30, 2009. 

The ratings agencies have been busy: we are awash with downgrades and warnings. First up, S&P. They have ranked banks’ health using a new methodology, and it makes for grim reading. Just nine of 45 banks exceeded the minimum “risk-adjusted capital” ratio (for example, HSBC did well; UBS and Citigroup less so). The results are important because the new methodology foreshadows the new capital regime ratio likely to be adopted by Basel next year. S&P conclusion: “Capital for the majority of banks remains a relative weakness.”

Next, Fitch has downgraded Mexico to BBB, just two notches above junk status. 

Happily for Sweden, Latvia accounts for less than five per cent of Swedbank’s total lending and only three per cent of SEB’s, and both banks have recently strengthened their balance sheets. Less happily for Sweden, currency traders are bearish the krona, writes Andrew Ward of the FT