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European Banking Shares Surge on Eased Liquidity Rules

Shares of European banks including Deutsche Bank AG, BNP Paribas SA and Barclays Plc surged as central banking leaders agreed to water down and delay a planned Basel 3 bank liquidity rule.

The Bloomberg Europe Banks and Financial Services Index rose as much as 2.1 percent with Italy’s Monte di Paschi die Siena SpA leading gains at 19 percent. Deutsche Bank added as much as 5 percent and both BNP Paribas and Barclays were up 4 percent.

Lenders will be allowed to use an expanded range of assets including some equities and securitized mortgage debt to meet the so-called liquidity coverage ratio, or LCR, after a deal struck by regulatory chiefs meeting yesterday in Basel, Switzerland. Banks will have an extra four years to fully comply with the measure.

“We see the LCR changes as a material improvement in the regulatory environment that banks face,” Matt Spick, an analyst with Deutsche Bank in London, wrote in a note to clients today. “Corporate-heavy universal banks will be the biggest beneficiaries.” Barclays, BNP Paribas, Societe General SA and Skandinaviska Enskilda Banken AB are among those, he said.

Banks and top officials such as European Central Bank President Mario Draghi pushed for changes to the liquidity ratio, arguing that it would choke interbank lending and make it harder for authorities to implement monetary policies. Lenders have warned the measure might force cuts in loans to businesses and households.

“This is a significant relief for the banks,” Christian Hamann, a banking analyst with Hamburger Sparkasse in Hamburg, said in an interview.“For many banks the liquidity rules are the most painful part of Basel 3.”

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