A survey by FICO and the European Financial Marketing Association reveals risk managers worried about access to liquidity.
One of the key takeaways from the fall 2010 NeuGroup European Treasurers’ Peer Group (EuroTPG) meeting was that treasurers were worried that coming bank regulation would hinder access to liquidity—mainly because it would make borrowing more expensive. Now a new survey of bank risk managers confirms these fears.
Decision management services company FICO and European Financial Marketing Association (EFMA) released survey results that showed “banking regulations may dampen credit supply and slow economic growth that is typically fueled by consumer and small business spending.”
The survey, the European Credit Risk Survey, revealed that of particular concern for survey respondents were Basel III capital requirements. While the survey mainly referred to the impact of fewer loans on bank balance sheets, the overall effect may be higher borrowing costs. EuroTPG members also indicated Basel III as a concern. For them, 2012 will be a big year as several members have revolvers coming up for renewals or bonds maturing. The question was whether to wait or strike a deal earlier than that to take advantage of the prevailing low rates. Waiting could cost them more after new bank rules kick in.
That Basel III and Dodd-Frank will impact borrowing has been an ongoing theme both in the US and abroad (see related story here. In the US, however, corporates will likely see less of a Basel III impact because most US banks are reported to be more adequately capitalized (so it may not curtail lending or raise costs). US corporates also have wider access to funding, such as the debt markets. Further, the Financial Accounting Standards Board (FASB) recently backed away from its proposal to require banks to mark-to-market the value of their loans (see related story here).
In the FICO/EFMA survey, one-third of respondents said Basel III’s higher capital reserve requirements would cause consumer lending to decrease, which in turn will put a damper on bank profitability, which could undermine the stability of the banking sector. Also, the survey showed respondents in most regions indicating that while the amount of credit provided is expected to rise, demand for credit is expected to rise faster, a trend more pronounced among small business borrowers.
FICO/EFMA said survey respondents included more than 100 people from 32 countries. This included respondents from global banks and smaller institutions.