Basel III Brought Inreases On Stock Markets

Basel III signed in Basel, Switzerland

Because of the fear of a new international credit crisis, the leaders of the global financial system took a few days ago the most important decision in recent decades. Known as Basel III, the agreement signed in Switzerland requires banks to increase their capital several times over the next eight years, in order to be able to face another potential financial crisis.

Banks worldwide will be obliged to keep their capital equivalent to 7% of high-risk assets, up from just 2% in the current regulations, explains Reuters.

Thus, we are talking about hundreds of billions of euros that banks must add to the capital over the next ten years; only German bankers need 105 billion for 10 of their largest banks. The available period of time for banks to collect those amounts is, however, longer than expected.

The European Central Bank President, Jean-Claude Trichet, said the new agreement is fundamental to strengthening the global banking standards; and the contribution for a long term stability and development of the system will be substantial.

In short, the leaders of the global financial system hope that through the Basel III agreement they will determine banks to adopt less risky strategies and ensure they have enough capital so not to resort for financial aid from taxpayers’ money when they have difficulties.

Banks are happy to be given at least eight years to implement the decisions taken in Switzerland, but say the new rules will only reduce the amounts they have available for loans and hinder the economic recovery in Europe and the United States .

The warning was given by banks in France, which announced at the same time of having the greatest capacity to adapt to the new rules. Their representatives said the funding will have an impact on the economy, especially on costs and volume of loans. Thus, the population would pay more because the banks must raise their required amounts for the Basel III regulations, according to the Associated Press.
How bankers received the new rules

The reactions were different, many important names in the international financial environment still thinking that the agreement will help prevent a new credit crisis, even if it might seem difficult. Some received Basel III with skepticism, while the Germans were against it.

“We have done it in such a way that the economy will not suffer … I think it will make a new crisis less likely … but we cannot rule it out completely.” said Nout Wellink, the head of the Basel Committee, according to Daily Telegraph.

Karl-Heinz Boos, managing-director of the Association of German public sector banks (VOEB), believes: “The agreement is a regulatory shot in the dark as no studies on the impact are envisaged. We see the danger that the ability of German banks to supply loans to the economy will be significantly curtailed. Small and mid-sized companies that have no access to capital markets will suffer in particular. It seems the timetable here was more important than quality (making this) a compromise package with risks and side effects.”

Jean-Claude Trichet, president of the European Central Bank said: “In the present episode of global recovery, after this shock we had in the previous years, uncertainty is the enemy in a way. With this decision … we eliminate uncertainty in a large area which is a major contribution in consolidating the global economy. It’s a work in progress.”

The Swiss have doubts and say that the agreement does not address all problems. “While the reform package is far-reaching, it does not yet comprehensively address the TBTF (“too big to fail”) problem. Further efforts will be required in that area at the international and at the national level.” said Philipp Hildebrand, Swiss National Bank Governor.

Basel III will be approved in Seoul in November

The Switzerland agreement was signed by central bank governors and representatives of supervisory authorities from 27 countries after a year of discussion and lobbying in which banks and governments have tried to protect their national interests.

Besides the new rules on capital requirements, Basel III includes a series of reform measures undertaken to persuade banks to reduce risk, including rules for liquidities and fees that banks have to pay. Other measures were relaxed in July, after an intense lobbying from banks.

One of the countries which did not agree to the consent was Germany, its representatives agreeing to sign only after receiving more time to reform the banking system. Thus, Germany has been given 10 years, starting in 2013, to change certain types of capital, including the commonly used silent stake in the banking sector guaranteed by the state.

The Basel III agreement will be approved in November at the G20 countries meeting in Seoul. Convinced that the banks are to blame for the credit crisis, the G20 countries have asked in 2009 that supervisors work together to take measures to prevent a new crisis.

Basel III brought an increase in the European banking sector

Shares traded on stock exchanges in Europe have increased significantly yesterday after Sunday, Basel III was signed, under which banks must triple their high quality capital reserves by 2015.

The shares of HSBC Holdings Plc., Europe’s biggest bank, climbed by 2.3% to 677 pence. The shares of Societe Generale SA, the second largest bank in France, rose by 5.2%, to 46.17 euros.

The shares of Banco Santander SA, Spain’s biggest bank, rose by 0.6% to 9.98 euros. Santander has also agreed to pay 2.94 billion euros (3.77 billion dollars) for a 70% share hold in the Polish lender Bank Zachodni WBK, held by Allied Irish Banks PLC. The shares of Allied Irish increased by 1.7%, to 76 cents.

The shares of the German lender Deutsche Postbank AG, in the retail segment, decreased by 7.3%, to 25.06 euros (the largest decline in the last eight months). The decrease was driven by the announcement according to which Deutsche Bank AG will increase its capital by 9.8 billion euros; part of the money intended to increase the participation in Postbank. The shares of Deutsche Bank, the largest bank in Germany, grew by 1.7%, to 48.50 euros.

The shares of BHP Billiton Ltd., the world’s largest mining company, gained 2% to 1.959 pence as a result of the increase of industrial production in China. The shares of Rio Tinto Group, the world’s third mining company, climbed by 2.6% at 3.621,5 pence. The base metals prices followed an upward trend yesterday, on the London Stock Exchange.

The shares in BAE Systems Plc., Europe’s largest company in the defense sector increased by 2.5%, to 331 pence. The British company is looking for buyers for some of its operations.

The Market FTSE 100 index in London rose by 1.1% to 5.560,53 points; the CAC 40 in Paris increased by 1.2%, to 3.769,47, the DAX on the Frankfurt Stock Exchange rose by1% to 6.273,91 points. The ISE National 100 index on the Istanbul Stock Exchange increased by 2%, reaching a historic high of 61.831,04 points, after announcing the success of an important referendum concerning a constitutional revision, which will empower the Islamo-conservative regime.

Shares on U.S. markets surged yesterday in the opening, because of a higher industrial production rate in China; respectively a positive change is the European Commission’s estimates regarding the EU economy.

The shares in Bank of America Corp., the biggest U.S. bank, climbed by 3.4% to $ 14.01. The shares in Citigroup Inc., the third U.S. bank, rose by 1.9% to $ 3.99.

The shares of ArcSight Inc., security software manufacturer, increased by 25% to $ 43.97 after the announcement was released according to which the company will be bought by Hewlett-Packard Co., the world’s largest PC manufacturer, in exchange for $ 1.5 billion.

Yesterday at 9:38, the Standard & Poor ‘s 500 index rose by 1.1% to 1.121,44 points, the Dow Jones Industrial Average index rose by 0.8% at 1.0545,94,  and Nasdaq Composite rose by 1, 1%, to 2.266,53 points.

Asian shares traded on the exchange markets rose yesterday, based on the favorable data on China’s economy.

The shares of Inpex Corp., the largest oil company in Japan, gained 2.2% to 417,500 yen.
The shares of Hon Hai Precision Industry Co., the largest producer of custom-built electronics, rose by 6.5% to $ 115 Taiwanese dollars, after the company announced that it increased its sales in August.

The shares of Komatsu Ltd., a Japanese manufacturer of excavators, for which China is the biggest export market, rose by 1.3% to 1851 yen. In China, the industrial production rate increased by 13.9% in August 2010 compared to the same month of 2009. Analysts expected an advance of 13%.
The shares of Beijing Wangfujing Department Store Group Co., in China rose by 4.8% to 48.93 Yuan. The shares of Suning Appliance Co., the largest electronics retailer in China (by market value) surged by 3.5% to 15.55 Yuan on the Shenzhen market.

The shares of Mitsubishi UFJ Financial Group Inc., the largest bank in Japan, increased by 2% to 411 yen after the Basel Committee’s decision on the new capital regulations. The shares of Commonwealth Bank of Australia, Australia’s biggest bank, rose by 1.6% to $ 53.51 Australian.

The shares of HSBC Holdings Plc., Europe’s biggest bank, climbed by 1.8% on the Hong Kong market at HK $ 80.60.

The Shanghai Composite Index on the Shanghai market rose by 0.9% to 9.321,82 points, the Hang Seng of Hong Kong rose by 1.9%, to 21.658,35 points and the S & P/ASX 200 of the Stock Exchange in Sydney rose by 1.2% to 4.614,90.11