Basel III Hurts European Companies More Than U.S.

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According to Standard & Poor’s, under new capital rules for banks and insurers European companies will pay as much as 50 billion euros ($68 billion) a year in additional borrowing costs.   It is more than triple the amount for U.S. borrowers.

S&P’s chief credit officer for Europe, Blaise Ganguin, wrote in a report stating that higher funding costs, shortened loan maturities and a lower equity investor base may push up the cost of credit by 30 billion euros to 50 billion euros a year once Basel III and Solvency II are implemented fully by 2018.     U.S. borrowers will see costs increase by $9 billion to $14 billion.

Basel III imposes a global regulatory standard on the capital adequacy and liquidity of banks, while Solvency II is designed to boost insurers’ reserves.   The euro-region crisis has left European lenders with as much as 300 billion euros of credit risk, according to the International Monetary Fund.

The new rules will lead to a 10 percent to 20 percent increase over current interest costs for corporate borrowers in Europe and the U.S., depending on banks’ return on equity targets of 8 percent to 15 percent, according to S&P.   The regulations are due to start in 2013, with the final stages of the banking reform introduced in 2018.

Anna Timone (195 Posts)

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