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Free AccessMNI INSIGHT: Germany Blocks Bank Push To Relax Leverage Ratio
--Banks Argue Easier Leverage Ratio Needed To Meet Surge In Bond Sales
--Germany, Netherlands Oppose
By David Thomas
BRUSSELS(MNI) - EU countries including Germany and the Netherlands are
opposing a push by investment banks for leverage ratio rules to be eased in
order to boost their capacity to absorb an expected EUR815 billion increase in
government bond issuance this year, MNI understands.
Wholesale bank lobby group AFME has argued for the leverage ratio to exempt
not just high-quality government bonds but also the government-guaranteed loans
which have been central to the EU's economic rescue efforts.
The Commission has accepted the need for some new temporary exemptions to
the leverage rate, such as excluding central bank deposits from the calculation,
but bank lobbyists say they face an uphill battle to win additional changes.
While they are strongly supported by Italy, Spain, Portugal and Greece among
others, Germany, The Netherlands and some Scandinavian countries remain robustly
opposed.
--SURGE IN ISSUANCE
Eurozone bond issuance is expected to increase to EUR1 trillion this year
from an expected EUR185 billion before the onset of the Covid-19 crisis.
The leverage ratio will only become binding on banks in mid-2021 as part of
the Commission's CRR2 regulation but banks say it already acts as a constraint
on lending.
"Banks that are primary dealers in government securities will need to be
able to accommodate these increased volumes. This is true despite ECB purchase
programmes as these are carried out on the secondary market, thus leaving
significant pressure on primary dealers' books," AFME stated in a position paper
for regulators.
"Channelling the government support to end-users through the banking system
would remain curtailed, if provisions are not provided to exempt government
bonds and the state guarantees from the LR measure," it said.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$X$$$,MC$$$$,MT$$$$,MX$$$$,M$$EC$,MGX$$$]
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.