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Global Credit Research - 04 May 2011
New York, May 04, 2011 -- Moody's Investors Service says in a new report that although Basel 3 is
credit positive for banks, the standalone financial strength of
banks weakened by the global financial crisis is unlikely to return to
pre-crisis levels in the short term. The report discusses
the likely impact of Basel 3 on bank credit profiles and how different
groups of banks may be affected in the new Basel 3, post-crisis
environment.
The framework agreed by the Basel Committee on Banking Supervision in
the aftermath of the financial crisis sets new standards for global bank
regulation. "Basel 3 will be positive for bank creditors
overall, as it will improve the resilience of the global banking
system by adding sizeable capital and liquidity buffers,"
says Vice President and co-author of the report Tobias Moerschen.
The recovery of banks' credit profiles, however, is
constrained by the pressures many institutions still face given the fragile
economic recovery in developed markets, skittish financial markets,
and new global risks.
"While directionally positive, Basel 3 does not cure the structural
challenges banks continue to face from a credit perspective, such
as illiquidity and high leverage, nor does it alleviate the tension
between profit-maximizing equity holders and bank managers in contrast
to risk-averse bondholders," notes Senior Vice President
and co-author of the report Alain Laurin. While important,
the new regulatory framework is therefore only one part of the broader
effort to improve banks' resilience to economic downturns.
Stricter regulatory standards and investors' elevated focus on risks
in the post-crisis environment will not affect banks in a uniform
manner. The report discusses three different groups of banks:
1) institutions that are able to raise additional capital and bolster
liquidity to meet Basel 3 requirements, which may see their credit
strength improve; 2) weaker banks that will be challenged to comply
with the new rules, and may see their credit profiles deteriorate;
and 3) banks that are already largely compliant with Basel 3, whose
credit strength likely will remain stable. With the new rules acting
as a catalyst for change, weaker banks may seek acquirers,
seek government support, or wind down part or all of their operations,
with potentially adverse consequences for creditors.
The report notes that considerable uncertainty remains about the effects
of Basel 3 due to the long transition period (banks have until 2019 to
fully comply) and the likelihood that parts of the proposed framework
may change. Additionally, jurisdictions may differ in how
they adopt the new rules, with the potential for regulatory arbitrage.
Banks are also just beginning to formulate how they will adapt to the
Basel 3, post-crisis world and their strategies could have
a significant impact on their intrinsic financial strength.
The report is titled "Banks' Standalone Credit Strength Unlikely
to Return to Pre-Crisis Levels, Even under Basel 3" and is
available on www.moodys.com.
NOTE TO JOURNALISTS ONLY: For more information, please call
one of our global press information hotlines: London +44-20-7772-5456,
New York +1-212-553-0376, Tokyo +813-5408-4110,
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0800-891-2518, or Buenos Aires 0800-666-3506.
You can also email us at mediarelations@moodys.com or visit our
web site at www.moodys.com.
New York
Tobias Moerschen
Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Gregory W. Bauer
MD - Global Banking
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's: Banks' standalone credit strength unlikely to return to pre-crisis levels, even under Basel 3
No Related Data.
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