The new requirements would go into effect starting in January of two thousand thirteen. Banks would have five years to fully meet them. International banking lawyer Ernie Patrikis, a former vice president of the Federal Reserve Bank of New York, explains why.
ERNIE PATRIKIS: "We cannot be telling banks, on the one hand, raise capital right away, and on the other hand lend more."
Economic growth remains slow in much of the developed world. The worry is that any decrease in lending could hurt a global recovery.
One way for banks to meet the proposed new rules would be to sell more of their stock. That is what Germany’s Deutsche Bank did last week. It announced a sale offer valued at over eleven billion dollars.
Ernie Patrikis thinks chief executive officers of banks have three choices.
ERNIE PATRIKIS: "One is to go out and raise more common equity. Another one is to not pay dividends. And that’s not something most CEO’s want to do because their shareholders aren’t going to be particularly happy. And the third choice is sell assets -- downsize the bank."
Nations on the Basel committee will now seek to pass the new rules into law so their banking supervisors can enforce them.
Banks that fall below the reserve limits could have to stop paying dividends to shareholders or bonuses to top employees. Ending dividends would anger shareholders. And limiting pay could send bankers fleeing to hedge funds, where there are fewer rules.
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2013-11-25
2013-11-25
2013-11-25
2013-11-25
2013-11-25
2013-11-25