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Basel III: Banks Expect Lower Profits

Published: November 11, 2010; 13:09 · (Vindobona)

Private banks will have to adjust to lower profits because of Basel III regulations..

Basel III: Banks Expect Lower Profits / Picture: © Flickr

The returns on equity will, depending on the business model of the bank amount to 15 to 20%, says the president of the Bankenverband (BdB, Banking Association), Andreas Schmitz, in an interview with the Reuters news agency.

Basel III demands a higher capital base from the banks. "More capital for the same business leads to lower returns on equity." This in turn could lead the banks to the paradoxical situation of more difficult refinancing despite a higher equity. Higher standards might be set for the procurement of new capital.

There will be a greater involvement of banks on the capital market, says the Bankenverband. This development would be positive for both companies and banks, because it would reduce the interdependence between each other, explains Schmitz: "For the banks, it is also good that the companies have other accesses to the capital market because it increases the stability of corporate financing". Schmitz added: "We have to see that companies in Germany are heavily financed by banks, something which is different in the U.S. We must find a better mix”. Unilateralism is simply fatal, says the Association’s president, as competitive disadvantages would be the consequence.

The Bundesbank has already declared in a statement that Basel III will reduce the income of banks. It will not come however to a shortage of the credit offer; therefore no effects are expected to be felt in the real economy.