Welcome for easing of leverage regulations

Deutsche Bank and Barclays led European bank stocks yesterday to their highest for nearly three years after regulators watered down new rules aimed at strengthening banks but which could have limited their ability to lend.

Sunday’s decision by the world’s top central bankers was aimed at trying to avoid restricting financing for the global economy, and was seen as a positive for banks, especially those with big investment banking arms.

The easing of the rule, after lobbying by banks, is the latest sign of how regulators have become more willing to accommodate lenders as the focus switches to helping economic recovery.

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Shares in Deutsche Bank and Barclays were each up more than 3 per cent, and UBS, Unicredit and Royal Bank of Scotland were each up more than 2 per cent.

“The significant regulatory forbearance ... should go some way towards alleviating concerns on the leverage ratio, notably at Barclays and Deutsche Bank,” Kinner Lakhani, analyst at Citi, said.

The leverage ratio rules, due to come in from 2018, act as a backstop to a lender’s core risk-weighted capital requirements. A ratio of 3 per cent means a bank must hold capital equivalent to 3 per cent of its total assets.

Banks had lobbied regulators hard to ease the leverage ratio and also won some concessions last year on new requirements to have buffers of liquidity such as government bonds that can be sold quickly if funding markets dried up.

Both rules form part of Basel III, the global accord endorsed by world leaders in 2010.