By Dominic Lau
LONDON, Jan 26 (Reuters) – Stricter global banking rules will add to short-term headwinds facing European banks and hurt their shares, yet details being hammered out could make them more alluring for more risk-averse long-term investors.
The Basel Committee of central bankers and financial supervisors is seeking to avoid a repeat of the credit crunch and reduce the industry’s cyclical volatility by raising the quality of banks’ capital, after many of the assets they were using crumbled during the crisis.
U.S. President Barack Obama has also laid out rules to restrict some banks’ most lucrative operations.
Investors looking for quick returns may not like these ideas. The banking sector, which rallied sharply in 2009, is also under pressure from the prospect of central banks gradually withdrawing liquidity this year and from rows over bonuses.
But the tougher regime, with the Basel proposals taking effect by end-2012, may not be bad for long-term players. (For scenarios on possible impact of Basel proposals, click here)