Markets welcome new global banking rules

UNITED STATED

Switzerland – Bank stocks rose Monday 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.

Fears that banks will have to raise large amounts of capital, hitting their profits and shareholder dividends, depressed some bank stocks including those of Deutsche Bank AG, which were down 0.3 percent in morning trading.

Market-wide, however, the reaction was positive, sending stocks in French banks BNP Paribas and Societe General up 1.3 percent and 2.7 percent respectively. In Switzerland, UBS AG, which was particularly hard hit during the subprime crisis, rose 0.8 percent. Rival Credit Suisse Group was up 1.7 percent.

Shares of Britain's biggest bank HSBC PLC rose 1.2 percent in morning trading while Unicredit of Italy saw its stock jump 2.5 percent.

Deutsche Bank's Chief Executive, Josef Ackermann, said at a press conference in Frankfurt on Monday 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."

Under the new rules endorsed Sunday, banks will have to significantly increase their capital reserves to strengthen their finances and rein in some of their risk-taking — a move that some banks had warned could dampen the recovery by forcing them to reduce the lending that fuels economic growth.

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. The rules also are intended to boost confidence that the banking system won't repeat past mistakes.

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.

Under current rules, banks must hold back at least 4 percent of their balance sheet to cover their risks. This mandatory reserve — known as Tier 1 capital — would rise to 4.5 percent by 2013 under the new rules and reach 6 percent in 2019.

In addition, banks would be required to keep an emergency reserve known as a "conservation buffer" of 2.5 percent. In total, the amount of rock-solid reserves each bank is expected to have by the end of the decade will be 8.5 percent of its balance sheet.

U.S. officials including Federal Reserve chairman Ben Bernanke issued a joint statement Sunday calling the new standards a "significant step forward in reducing the incidence and severity of future financial crises."

European Central Bank president Jean-Claude Trichet, chairman of the committee of central bankers and bank supervisors that worked on the new rules, called the agreement "a fundamental strengthening of global capital standards" that will encourage both growth and stability.

Representatives of the Fed, the ECB and other major central banks agreed to the deal 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.

Fred Cannon, a banking analyst at Keefe, Bruyette & Woods, said the rules probably will reduce bank profit margins and lending from the heights they reached in 2007. But he added that before 2000 or so, many U.S. banks were already operating with enough capital reserves to meet the new minimums.

Associated Press writers Andrew Vanacore in New York, Martin Crutsinger in Washington, Frank Jordans in Geneva and David Rising in Berlin contributed to this report.

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