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Challenges to the recapitalization of European banks

Implications for high risk/high yield banking activities

The requirements to be introduced by Basel III will lead to higher capital ratios and adequate liquidity resources. They will make it necessary to adopt new strategies and innovative solutions to optimize balance sheets and sustain the profitability of banks. As such, banks will be forced to reconsider their product offerings and funding strategies pushed by the policymakers’ urge to a recapitalization of the banking sector.

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Basel III is forcing banks to innovate

New liquidity requirements demand both stable financing and attractive products

The financial crisis emphasizes the capital and liquidity risks in the financial world. The new Basel III framework was published in December 2010 in order to control these risks better. While Basel II is focused chiefly on counterbalancing losses by capital buffers, Basel III goes a step further. In addition to stricter capital requirements, the new directives of Basel III impose more explicit requirements on the liquidity position of banks. The combination of these requirements in particular makes it more difficult for banks to find the optimum balance sheet ratios.

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Will Basel III force disintermediation?

Implications for high risk/high yield banking activities

The new capital requirements specified by the Bank of International Settlements (BIS), also known as Basel III, have landed broadly. A great deal of attention has been focused on the implications of Basel III for the capital structure of banks. Various banks have since adjusted their capital positions to match the new preconditions. A number have even gone as far as acquiring new (hybrid) capital via so-called contingent convertibles (coco) in anticipation of the stricter requirements, allowing capital to behave like debt, except in certain (stress) situations in which it is converted to Tier 1 capital. Basel III, however also has implications for the other side of the balance sheet. This article aims to provide insight into the implications for the high risk/high yield activities of banks in Europe.

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Basel III: the price of a stable banking sector

Implications of banking regulation for banks and their corporate clients

The BIS’s new capital requirements for banks, also known as Basel III, draws the attention of various stakeholders. It’s not only the banks that are keen to take note of these additions to the Basel II Accord of June 2006, but their professional clients also want to understand the implications for them. This article provides some suggestions on how to cope with the consequences of Basel III.

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