Magazine article American Banker

Tough Capital Rules Give U.S. Banks Edge over EU Rivals: Study

Magazine article American Banker

Tough Capital Rules Give U.S. Banks Edge over EU Rivals: Study

Article excerpt

Byline: Sarah Todd

Rigorous capital standards have helped U.S. banks nearly recover from the financial crisis as many of their European counterparts continue to flail, according to a new study from the Boston Consulting Group.

North American banks are on track to post a so-called economic profit for the first time since 2007, according to the study, which weighed income against operating and refinancing costs as well as loan-loss provisions and capital charges.

Their economic bottom line was -7 basis points in 2011 and -2 basis points in 2012. The study predicts North American banks' score this year will cross into positive territory but did not provide a precise estimate.

In the U.S., regulators' "rigorous and pessimistic assessment of capital adequacy" in the aftermath of the financial crisis ultimately proved to be a major boon to the industry's stateside recovery, according to Boston Consulting's Duncan Martin, who coauthored the study.

"Banks were forced to raise capital ... and that broadly restored market confidence," Martin said in an interview.

By contrast, European banks in 2012 posted their worst year since the financial meltdown. Economic profit dropped to -43 basis points, down from -27 in 2011.

The outlook was even more dismal for Southern European banks. Greece, Italy, Spain and Portugal recorded an economic profit of -132 basis points last year, compared with -55 in 2011. Loan-loss provisions were the major source of Southern European banks' struggles, according to the study. …

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