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European banking market shares boosted by new liquidity rules

Industry Sector

Finance and Banking

Published

7 January 2013

Author

Alex De Angelis

Type of News

Market

Stocks within the European banking market rose on Monday, after regulators eased global bank liquidity rules in order to enable lenders to issue more credit to help struggling economies grow.

A previous draft two years ago said they would have to meet new requirements by 2015, but that has now been extended to 2019.

The reserves are supposed to make banks less vulnerable to lots of customers trying to withdraw their money.

The Bloomberg Europe Banks and Financial Services Index rose as much as 2.1% with Italy's Monte di Paschi die Siena SpA leading gains at 19%. Deutsche Bank added as much as 5% and both BNP Paribas and Barclays were up 4%.

Lenders will be allowed to use an expanded range of assets including some equities and securitized mortgage debt to meet the so-called liquidity coverage ratio, or LCR.

Under the new rules, banks will have to hold enough cash and easy-to-sell assets to tide them over during a 30-day crisis.

In the lead up to the financial crisis, banks ran down these reserves to dangerously low levels. Regulators hope that extra liquidity would allow banks to survive a run on them, as happened with Northern Rock in 2007.

By 2019, banks will be required to hold cash and assets - which can quickly be sold - equivalent to the amount they think could leave the bank in during a 30-day high stress period, net of the amount coming in.

In 2015, banks will have to hold assets worth 60% of these anticipated net cash outflows.

For more information on the European banking market, see the latest research: European Banking Market

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