Interesting banking news development over the weekend…The Basel Committee (which sets global requirements for liquidity and capital ratios for banks) has announced an unexpected easing of rules.
FT’s Brooke Masters has the story, which involves looser requirements on bank liquidity
…the final rule approved by the supervisors of the Basel Committee on Banking Supervision is significantly more flexible than the draft version put forward more than two years ago. Banks will be able to count a much wider variety of liquid assets towards their buffers, including some equities and high-quality mortgage-backed securities.
“This is quite a lot more favourable to the industry than I and the market were expecting. The changes to the asset definitions and the outflow calculations in particular look like a fairly massive softening of approach,” said Daniel Davies, banking analyst for Exane BNP.
In a note out this evening, SocGen’s Sebastien Galy sees this as a big win for Europe, where the credit system remains in a state of disrepair:
Crucially for the Eurozone, the Basel committee watered down the requirement for its liquidity requirement. European banks used to hold loans on their balance sheets, rather than securitize them. A rapid change to this practice was already constraining credits in the Eurozone. It is good news for sentiment and means the financial system will prove a stronger motor of transmission for European monetary policy. It tells us also that European authorities, namely the ECB and its national representatives are doing whatever they can to help credit flow through the system and matters more than any ECB rate cut. From a monetary model perspective, it is EUR negative (money will grow faster), from a sentiment perspective it is presumably positive and may have the opposite effect short-term on EURUSD.
We’ll see if markets react tomorrow, but judging from the tone of various analysts, it would not be a surprising to see this supporting risk tomorrow, at least in Europe.