French and German banks to benefit most from relaxation of liquidity rules says Reuters' Steve Slater.
LONDON, ENGLAND, UK (JANUARY 07, 2012) (REUTERS) -
"(QUESTION: Steve, markets giving this news from Basel over the weekend the thumbs up. But doesn't it just underline how weak and fragile Europe's banking system and economies actually are?)
Yeah, that is one way of looking at it. Undoubtedly, the reason why they've relaxed these liquidity rules is because of concerns about the euro zone economy, the worry that if they had put in place these rules, then banks would have retreated more and stop lending to the domestic economy. So yes, it is a reflection on how weak the euro zone economy is certainly.
(QUESTION: So longer term then, this might not be such great news for investors in banks.)
Well for the economy in particular, it's pretty weak news. For the banks, they talk quite positive in that it shows that regulation is not a one-way street. For a couple of years, we've had toughening capital rules and these quite, quite harsh liquidity rules coming in - well proposed to come in. Now it seems that they will relax in some areas because the economy is in such dire straits that they can't push on all levers at the same time.
(QUESTION: But the other side of that would be why are we relaxing the rules and the constraints in the banks because it was a financial crisis, a huge crisis, reforms had to be put in place but now it seems like we're pulling back.
)Yeah, well that's certainly the argument of a lot of politicians and a lot of regulators. The banks would argue that there's too much coming too fast, they want to see a more orderly process of deleveraging and shrinking their balance sheets rather than try to do it all in the next two or three years when the economy needs a lot of lending and their argument is that to put in place these measures would have really restricted any lending to most domestic economies in the euro zone.
(QUESTION: Well that's the big question though, isn't it? Are banks going to start lending again?)
I doubt it. I think what this will do is ease the pressure on them to stop lending or deleveraging. But it looks like that they won't necessarily open the floodgates and start lending freely. I think it will remain a tough couple of years but they should prevent a real retrenchment by many of the major banks.
(QUESTION: Okay. And just to finish up, all banks doing pretty well today, they're all up in positive territory. But which ones or which countries' banks do you think will benefit most?)
From the relaxation of liquidity rules, the French and the German banks seemed to be the biggest beneficiaries. They were under the most challenged to meet these new requirements so they've had a good uplift this morning."