European banks are warning that the effects of the European Central Bank’s €1.1tn quantitative easing will be blunted by tough capital rules designed to curb risks in securitisations.
Bankers meeting in private sessions at the World Economic Forum in Davos said the concern has been expressed most forcefully by Deutsche Bank, Germany’s largest bank, and Société Générale, France’s second-biggest bank.
Anshu Jain, co-chief executive of Deutsche, and Frédéric Oudéa, chief executive of SocGen, told a board meeting of the Institute of International Finance, a trade association, that the industry should push for the rules to be revised.
They said this would encourage more securitisation, ease the shift of assets from constrained bank balance sheets to capital markets and make the plan announced on Thursday by European Central Bank president Mario Draghi to buy €60bn a month of mainly public-sector bonds more effective.
Deutsche Bank’s co-CEO Anshu Jain has been speaking at a banking conference in Frankfurt this morning organised by German newspaper the Handelsblatt, reports the FT’s Frankfurt correspondent, Alice Ross.
After suffering some light teasing from the German presenters about the fact he was speaking in English, here are some highlights:
He expressed concern over the stricter rules on leverage ratios being imposed on US banks compared to European banks, saying that the US was adopting a ‘very’ high standard and that Europe hadn’t and shouldn’t. Still, he said that the debate over leverage ratios was “done” and that the industry now needed to move on.
He sounded repeated warnings about the growing gap in economic growth between the US and Europe, with European countries falling further behind: “Europe is falling behind the US in every factor; the banking sector is one of them,” he said.
He also warned that regulation has become competitive between different regimes: specifically the US and Europe, such that at times the regulations contradict each other and make it hard for the banks to follow – though he insisted he was critical of the need for regulation as such. Read More
Europe’s banks need to shrink their balance sheets dramatically to ensure the continent can withstand another financial crisis, according to an analysis by Royal Bank of Scotland.
Eurozone banks must shed at least €2.7tn in assets by 2016 for their balance sheets to be “sustainable”, RBS economists have calculated in a research note
The sector’s assets are worth about €33tn currently, or nearly three and a half times the single currency zone’s annual gross domestic product.
“If you have a banking crisis and banks are three times the size of their underlying economy, then governments will not be able to support them all,” said Alberto Gallo, head of European credit research at RBS.
“[Europe’s banking system] is the biggest in the world and arguably too big . . . in Japan, Canada and Australia the banking sectors are about twice the size of the economy, while the US is around the same size [as the economy].”
Since mid-2012 eurozone banks have reduced their balance sheets by €2.4tn according to data from the European Central Bank in Frankfurt. However, there is “at least €2.7tn more to go” according to RBS – a reduction that would bring banks’ combined assets down to about three times eurozone GDP. Read More
Global regulators pressed ahead on Wednesday with plans to limit overall bank borrowing and make it easier for investors to compare institutions, announcing that banks will have to calculate and disclose their “leverage ratios” according to a newly agreed global formula starting in 2015.
The Basel Committee on Banking Supervision sees the leverage ratio as a crucial “backstop” that prevents banks from cheating on the main risk-based safety measure, the capital ratio. But banks argue it will unfairly penalise institutions that engage in high-volume, low-risk activities such as mortgage lending and trade finance.
Up until now, the leverage ratio’s use has been limited because US and European banks have calculated the measure in starkly different ways. On Wednesday, the Basel group, which includes representatives of 27 major financial centres, announced it had agreed on a common formula that measures top quality capital as a percentage of total assets, both on and off balance sheet, without any adjustment for risk. It aims to force banks to meet a minimum leverage ratio of at least 3 per cent in 2018. Read More
EU finance ministers failed to reach a deal on new rules for bailing out European banks after nearly 18 hours of negotiations early Saturday morning, forcing them to reconvene next week for a make-or-break session ahead of a summit that was supposed to set the course for a future EU “banking union”.
The talks broke down over wide-ranging disputes both within the eurozone and between euro and non-euro countries on how flexible the rules should be in requiring bank creditors and investors to pay for a bank failure in order to spare taxpayers from shouldering most of the bailout burden in the future.
“If it was just fringe issues, we would stay through the night,” said Michael Noonan, the Irish finance minister who chaired the meeting as holder of the EU’s rotating presidency. “There are still real issues, core issues outstanding.”
Diplomats and officials involved in the talks said the biggest problem became the varying demands from multiple countries to have the rules tailored to their specific financial systems – the same issue that has been bedevilling negotiators for weeks.
A German-led group of countries insisted that such “bail-in” rules be of limited flexibility, giving national authorities little choice of when to force losses on equity and bond holders after a bank collapses, as well as limited room to choose which kinds of liabilities can be exempted from such bail-ins. Read More
France and Italy are fighting against ambitious plans by the ECB to basically ‘externally audit’ 140 banks across the EU representing 80% of Europe’s banking assets. The implementation of the project (by the head of financial stability at the central bank) appears to have two main drivers. First, to understand which banks’ balance sheets are inhibiting lending (and why); and second, to ensure there is clarification on taxpayer-funded bailouts versus shareholders and depositors taking losses first. As Zeit reports, it seems the ECB appears to be questioning the reliability of the banks own figures.
The European Central Bank (ECB) is working on a strong kick to overcome the crisis. It goes to the timely information in a rehabilitation center to European banks, whose balance sheet problems inhibit lending.
With the implementation of the project was Ignazio Angeloni commissioned, head of financial stability at the central bank. The timing is already set. From the autumn of the monetary authorities will illuminate along with the national supervisory authorities, the balance sheets of major financial institutions in the euro zone. There is a total of around 140 banks, which together cover about 80 percent of the market. Read More
European stocks fell for a second day-in-a-row (notable in its own right as not having happened for 5 weeks) for the biggest drop in 6 weeks capping the worst week in 2 months. Spain and Italy saw their stock indices drop 3.6% on the week. But it was European banks and peripheral sovereign bonds that saw the most damage. As JPY-funded leveraged momo come rapidly undone, Italian and Spanish bond spreads saw their biggest 2-day drop in 8 months to end back at 5-week highs. EURUSD ends the week up 0.6% (and the JPY +2.2%) as repatriation escalates. Europe’s VIX is holding around 18.% (up 2.5 vols on the week).
FTSE Mib -0.7%
A quick gander at the 10′s
Italy 4.152% -0.001bp or -0.02%
Spain 4.416% -0.027bp or 0.61%
Germany 1.432 +0.002bp or +0.14%
US 2.0001% -0.0156bp or -0.77%
which leaves the last 2 days for peripheral bonds as the worst in 8 months… (back above 300bps for the first time in six weeks)
In a little under two minutes, Nigel Farage sums up the utter farce that “the religion” that Europe has become. He explains, his fear is that what will break up the Euro, “is not the economics of it, but wholesale, violent revolution,” in the Mediterranean, and that is “all so unnecessary!” Speaking at Simon Black’s Offshore Tactics workshop, the so-called modern day Cicero goes on to point out that France’s Hollande is “the number 1 among idiots running countries around the world,” and worries that Merkel’s pending election means there will be more and more ‘tough talk and action’ as she shows the people she is in charge. Simply put he warns, alongside Ron Paul, that if you have money in European banks, “Get your money out,” because, “when the next phase of the disaster comes, they will come for you.”
Europe’s €490bn fixed value money market fund industry will be “killed off” by tough reform proposals drafted by the European Commission, industry figures have said.
The clampdown could also undermine the larger variable net asset value money fund sector, potentially increasing risks for investors.
The leaked draft forms part of a global regulatory backlash against constant NAV money funds, which invest in high-quality, short-term money market instruments and trade at a fixed €1 or $1 a share except in extreme circumstances.
Brussels argues constant NAV funds are susceptible to “massive and sudden redemption requests”, which can create systemic risks given that money market funds hold 38 per cent of short-term debt issued by European banks. Read More