The Basel III rules on bank capital may penalize Europe’s diversified universal banks, most of which proved resilient throughout the financial crisis, said Jacques de Larosiere, a former governor of the Bank of France and the president of Eurofi, a policy review group dedicated to financial services.
Writing in the Financial Times, de Larosiere said universal banks, with portfolios that include both retail and corporate lending, project finance, investment banking and fund management, usually keep loans on their balance sheets and do little in the way of securitization.
This model suits the way the European economy is financed, which is mainly through bank intermediation, he said.
The need for universal banks to increase their own funds significantly will have two consequences: credit will become more expensive and there will be a tendency to reduce lending and to shorten lending horizons, de Larosiere said.
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