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The
'Basel III Endgame' standards, the final leg of international
bank capital rules that followed the global financial crisis,
could impact U.S. banks disproportionately, according to
consultancy firm Oliver Wyman.
Each country decides how it will apply the globally agreed Basel
rules, leading to some differences in practice, and current
proposed U.S. rules are more punitive than European proposals in
how market, credit, and operational risk capital are calculated,
it added.
European lenders could gain about half the revenue lost by their
U.S. peers from next year, with non-bank financial firms such as
private credit funds and non-bank liquidity providers winning
the rest, the study said, adding that European wholesale banking
revenue totalled $195 billion in 2023.
The Federal Reserve is considering possible adjustments to the
rules, due to be introduced mid-2025, after U.S. banks warned
that they risked causing lenders to curtail lending.
While Oliver Wyman expects changes to the current rules, it said
that in the current form Basel III "could largely close the
return gap between US and European banks, relevelling the
playing field for Europeans."
"It presents an interesting change in direction and an
opportunity for European banks," partner Ronan O'Kelly told
Reuters.
European banks have lost market share to more profitable U.S.
banks since the 2008-09 financial crisis, with investment
banking league tables dominated by the Wall Street giants.
European lenders Deutsche Bank, HSBC, Barclays, BNP Paribas,
Societe Generale and UBS have seen their share of capital
markets business shrink to 35% in 2022 from 41% in 2012, against
U.S. firms JP Morgan, Citi, Goldman Sachs and Bank of America,
Oliver Wyman found.
But Europeans' share could rise 10 percentage points after Basel
III rules are adopted, it said.
Morgan Stanley, which contributed to the research, was excluded
from the numbers.
Basel III rules agreed include stricter capital, leverage and
liquidity requirements for big banks and aim to boost financial
stability.
The current U.S. rules are likely to result in a 35% increase in
so-called risk-weighted assets (RWA) for U.S. banks globally and
international banks' U.S. subsidiaries, compared with 15% for
European banks, Oliver Wyman said.
Risk-weighted assets measure how much capital banks need to hold
against the risks they are taking.
(Reporting by Stefania Spezzati; additional reporting by Huw E.
Jones; Editing by Tommy Reggiori Wilkes and Toby Chopra)
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