Markets liked the guidelines that global bank regulators announced on Jan. 6. As we’ve reported, the new rules specify the kinds of financial assets banks can hold that will be counted as safe and easy-to-sell, and they’re less stringent than expected. At last glance, European banks received a nearly across-the-board bump on the news, from Deutsche Bank (+3.4%) and Barclays (+4.1%) to Italy’s Banca Monte dei Paschi di Siena (+6.4%) and UniCredit (+3.6%), Spain’s Banco Popular (+3.2%) and France’s BNP Paribas (+2.3%) and Société Générale (2.8%).
Among other things, the rules will make it easier for banks to meet requirements on something called the “liquidity coverage ratio” or LCR. That is a measure of financial strength that essentially tells regulators whether banks have enough cash—and financial assets such as bonds that have stable values and can be easily sold to raise cash—to allow banks to survive a 30-day crisis.
One analyst told the Financial Times [paywall]:
“Some banks will now have a much higher LCR ratio than the minimum 100% under the new proposed rules. These banks will be in a position to reduce liquid asset buffers and increase their stock of higher yielding, relatively more illiquid assets, or else simply reduce their expensive wholesale funding. In either case, it should improve their earnings.”