Warning new European regulations could constrain lending activities
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The Basel III proposals on banking supervision could create unintended consequences for the financial system, according to Standard & Poor’s.
The credit ratings agency says the measures could constrain banks’ lending activities and their ability to trade on derivatives markets, hamper inter-bank lending, and encourage them to shift to short-term lending
However, it also says the proposals could strengthen balance sheets and trigger fundamental changes to banks’ business models and product pricing.
It says smaller deposit-funded banks will find it easier to adapt to the changes than larger wholesale-funded institutions because of the more stringent liquidity and capital requirements and some will have to make changes to their balance sheet structures or business models.
Standard & Poor’s credit analyst Bernard de Longevialle says: “In our opinion, the Basel III proposals address many of the weaknesses in Basel II and should lead to stronger, more stable banks worldwide.
“However, they are also likely to affect parts of the financial sector in ways that regulators may not have envisaged.”
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