Europe’s bank regulator says Europe’s banks have far to go in meeting capital requirements; lending to be crimped?
The European Banking Authority (EBA) said Thursday that if Basel III had been in force at the end of December 2011, Europe’s biggest 44 banks would have been about 199bn euros ($256bn) short in meeting their target of holding quality assets that are 7 percent of total assets. What’s worse, that number rises significantly “taking into account the capital conservation buffer and the surcharge for global systemically important banks,” the EBA said. In that case the biggest banks’ capital shortfall rises to €312bn ($403bn) in Tier 1 capital and €434bn ($560bn) total capital.
All this may mean banks won’t be lending anytime soon.
The EBA estimates are a bit lower than a similar assessment done in the spring, but still showed European banks have a very long way to go to bolster their balance sheets. But with the future so uncertain and banks continuing to suffer in the region, it’s going to be difficult for banks to raise those assets, observers said.
“The findings indicate that European banks will continue to need to either raise capital via equity issuance or sell assets to reduce their capital needs,” wrote Andrew Busch, Global Currency & Public Policy Strategist at BMO Capital Markets in a note to clients. “[M]ost importantly, the take-away is that European banks won’t be lending aggressively soon and this will continue to weigh on not only Europe, but also any entity that is dependent on European banks for things like trade finance.”
Basel III will be phased in starting in January and won’t be fully in place until 2019. However, regulators and some investors want banks to meet the requirements much earlier.