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Basel Rules Give US Banks Advantage Over Rivals: Bove

Monday, 13 Sep 2010 | 11:15 AM ET

The new Basel banking regulations are unlikely to have a major effect on US banks being that many of them already meet the mandated capital standards—giving them an edge over their global competitors, Rochdale Securities analyst Dick Bove said.

Global banks rallied Sunday and Monday after the Basel Committee on Banking Supervision announced its new regulations, which ultimately will force banks to have 10.5 percent of total capital on hand against liabilities.

The regulations, known as Basel III, were less stringent than analysts had anticipated and have the added benefit of not going into full effect until 2019.

Analysts had predicted Tier 1 capital requirements—which includes equity capital and disclosed reserves—would be 8 percent, but were mandated at 6 percent instead.

"The new regulations appear to be reasonable in most respects," Bove wrote in an analysis for clients. "They are unlikely to force the vast majority of America's largest banks to resort to any near-term capital raises. In fact, it appears that most American banks already meet the new standards, which will not be fully mandated for eight years."

Bove has been a harsh critic of the new financial reformsimplemented in Washington in part because they unilaterally raised capital requirements for US banks and put them at a potential competitive disadvantage with their global peers.

But the Basel agreement substantially curbs that effect and now actually could provide an edge for the US, he said. As things stand now, 61 of 62 US banks with assets of more than $10 billion meet the requirements.

"[T]hese rules are not expected to crimp the growth of the American banking industry," Bove said. "To the degree that foreign banks do not meet the requirements, big American banks will now have an advantage in global markets."

On the negative side, the rules eliminate the ability to count deferred tax assets, some mortgage servicing rights and trust preferred securities as assets.

"However, even this rule is blunted by the fact that these elements will be phased out over a 10-year period," Bove wrote.

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