• Friday, February 23, 2024
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BusinessDay

European banks climb after regulators soften on leverage

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European banks advanced, led by Deutsche Bank AG (DBK) and Barclays plc (BARC), after global regulators softened their stance on how companies calculate leverage.

Deutsche Bank rose as much as 4.2 percent to 38.4 euros in Frankfurt trading on Monday, its biggest increase in six months.

Barclays added 2.4 percent to 290.3 pence at 12:10 p.m. in London .Swiss bank UBS AG gained 2.4 percent to 18.63 francs.

“In a number of key areas the requirements have improved” for banks, including derivatives and off-balance sheet items, Credit Suisse Group AG analysts including Amit Goel said. “We think Deutsche Bank has the most to gain from a lower exposure measure.”

Global regulators are taking measures on leverage and requiring banks to set aside more capital as they seek to prevent a repeat of the financial crisis that struck in 2008, wiping trillions of dollars off the value of stock markets.

The 44-member Bloomberg Europe 500 Banks and Financial Services Index advanced as much as 1.5 percent to the highest level in almost three years.

Meeting yesterday in Basel, Switzerland amid warnings that an original plan would penalise low-risk financial activities and hurt lending, the Basel Committee on Banking Supervision gave banks more scope to use an accounting practice known as netting to calculate a leverage ratio. Proposals on how to determine off-balance sheet activities were also eased as regulators finalised the plan.

Leverage ratios are designed to curb banks’ reliance on debt by setting a minimum standard for how much capital they must hold as a percentage of all assets. A quarter of large global banks would have failed to meet a June version of the leverage limit had it been in force at the end of 2012, according to data published by the Basel committee in September.

Regulators will still require banks to hold capital equivalent to at least 3 percent of their assets, without any possibility to take into account the riskiness of their investments.

UBS, Switzerland’s biggest bank, also rose after CEO Sergio Ermotti dismissed speculation that he will spin off the investment-banking business to meet regulators’ demands for holding more capital.