Emerging Europe basks under Basel light touch

January 7, 2013

A lighter touch from the regulators in Basel is likely to be good news for eastern Europe, where policymakers have been concerned about the withdrawal of cash by western European banks to shore up their balance sheets at home.

Global regulators yesterday gave banks four more years and greater flexibility to develop cash buffers. Banks now have until 2019 to build up enough liquid assets to  keep them funded for 30 days in a squeeze.

That could slow the pace of bank deleveraging from eastern Europe, which was a worry for the region during the 2008/09 financial crisis, and has become so again during the euro zone crisis. The deleveraging was equivalent to 0.8 percent of the region’s GDP in the second quarter of 2012 and has reached 4 percent of GDP since mid-2011, according to the Vienna Initiative, which aims to prevent disorderly deleveraging from the region.

This week’s unexpectedly large relaxation of the rules “should play a tangible part in supporting the global recovery story”, according to Simon Quijano-Evans, emerging Europe economist at ING, who says emerging Europe “is likely to be one of the foremost beneficiaries, given Western European mother banks had been tangibly cutting exposure in the past years“.

Sounds like another feather in the cap of emerging European assets, which have started to come back into fashion in the past few months.

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