Stricter regs and EU corporates’ typical reliance on bank funding will hurt more than for US counterparts.
Bank and insurer regulations will push up the cost of corporate borrowing in Europe more than it will in the US, according to new research by Standard & Poor’s. That’s in part because European corporates rely more on banks for financing than they do on the capital markets.
S&P, in “Why Basel III And Solvency II Will Hurt Corporate Borrowing In Europe More Than In The US,” calculates that the additional bank borrowing costs in the eurozone for corporates would range between €30bn and €50bn per year once the regulations are fully implemented by 2018. The impact on US banks, by contrast, will range from $9bn to $14bn.
“This represents an increase of between 10 percent and 20 percent over current interest costs for corporate borrowers for Europe and the US, depending on banks’ return on equity targets of 8 percent to 15 percent,” the report states.
S&P adds that it believes there is the danger of credit rationing in Europe over the next several years, as the regulatory measures, principally Basel III and Solvency II, are phased in.
Earlier this month, S&P rival Fitch Ratings said that it expects Solvency II to force a significant asset re-allocation among European insurers that will reshape demand for a host of capital markets products. (See related stories here and here).