Bank-Capital Requirements Ease Sting for BNP Paribas, Santander

BNP Paribas SA and Banco Santander SA caught a break in new global bank rules, as they can use more cheap debt than originally proposed to meet capital requirements, according to Mizuho International Plc.

European banks without holding-company structures can use lower-cost senior liabilities for 3.5 percentage points of their total loss-absorbing capacity, compared with guidance of as little as 2.5 percentage points, the Financial Stability Board said on Monday. That higher proportion reduces the share that has to be met with more expensive types of debt.

The ruling will benefit BNP Paribas, Santander, Societe Generale SA and UniCredit SpA, as they are less capitalized than global peers and so have to raise the most funds, according to Roger Francis, a Mizuho credit analyst. The capital requirements form part of the FSB’s plan for tackling banks seen as too big to fail.

“This matters most to the banks that have the most work to do,” London-based Francis said by phone. “The FSB has given something back.”

Systemically important lenders worldwide will have to hold TLAC-eligible capital equal to 16 percent of risk-weighted assets by 2019, rising to 18 percent in 2022, the FSB said. This will form a buffer designed to ensure that investors rather than governments suffer losses in the event of a bank running into difficulties.

The share that European banks without holding companies can meet with cheaper senior liabilities will be 2.5 percentage points in 2019 and 3.5 percentage points in 2022.

The banks are able to use senior debt toward the specification because of the European Union’s Bank Recovery and Resolution Directive, which weakens protections for senior bondholders. Still, the notes remain less expensive for lenders than junior debt or equity.

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