Back when the Basel III regulations were being debated in the wake of the crisis, it was common to hear dire warnings that rules limiting how much banks can borrow would constrict lending and lower real output. Even some who ostensibly support higher equity capital requirements think there are “trade-offs” between a safer financial system and economic growth.
New research from Leonardo Gambacorta and Hyun Song Shin of the Bank for International Settlements suggests this thinking is backwards: “both the macro objective of unlocking bank lending and the supervisory objective of sound banks are better served when bank equity is high.” Read more
RBS’ analysts have revisited predictions made in 2011 that eurozone banks would have to shed €5.1tn of assets.
The good news is they have managed to get through almost half of that, or €2.9tn, since May 2012. The bad news being there remains another €3.2tn to go, including €661bn from the biggest banks — of which Deutsche Bank, Credit Agricole and Barclays need the most capital, followed by Societe Generale and Commerzbank. Read more
What happened with all that European bank deleveraging?
Some of it is over with, says Barclays — leaving, by our estimates of their estimates, about €650bn* of deleveraging yet to be carried out among the major European banks they cover**. Quite big, but much less than the €1.5tn – €2.5tn being discussed late last year. Read more
What links Hershey to the eurozone debt crisis? Well, aside from making a product that cracks under pressure, the confectioner has recently renewed a syndicated lending deal that Nomura’s analysts say augurs further European bank deleveraging.
Although European banks can now post lower rated collateral to access ECB funds, continuing funding pressures, EBA requirements and Basel regulations will ensure further sell-offs. We’ll know more later on Thursday, when EBA stress test results are disclosed. Thus far, European banks have announced around €1,200bn worth of planned sales and run-offs, as this chart from Nomura depicts: Read more
Looking forward to the new year yet?
After a likely outright contraction in GDP in 2012, in the creditless recovery that we envisage the pick-up in GDP growth is likely to be slow and shallow.