Europe’s Banks Face $95 Billion Funding Shortfall

Europe shares steady, ThyssenKrupp rallies

The 70.4 billion euros shortfall as of December last year was 29.1 billion less than the deficit recorded six months earlier, as banks stump up their capital reserves. Basel III, which is due to come into effect at the start of January 2019, aims to strengthen the banking industry following the financial crisis of 2008 which saw a number of big banks such as Lehman Brothers collapse. Many others received state aid after being deemed “too big to fail” meaning that if they went under they would significantly damage the wider banking industry and economy. Under the rules, banks are required to have a capital buffer of at least 7 percent of their assets on a risk-weighted basis to protect them from further financial and economic shocks. They must also have enough liquid assets to survive market upsets of up to 30 days, known as the liquidity coverage ratio. EU banks grossly under capitalized: Pro David Buik,Market Commentator Panmure Gordon & Co says many of Europe’s banks are grossly under capitalized. However, the Basel III rules have sparked concern that the new capital limits might cause banks to lend less, which could lead to businesses and families turning to unregulated “shadow banks” for credit. Last month, the Bank of England said it would reduce the level of required liquid asset holdings by 90 billion once the country’s eight largest banks and building societies had met the 7 percent capital threshold. “That will help to underpin the supply of credit, since every pound currently held in liquid assets is a pound that could be lent to the real economy,” the central bank’s governor Mark Carney said in a speech. Julian Franks, a professor of finance at the London Business School (LBS) who gave evidence to the Parliamentary Commission on Banking Standards, last week criticized the measures. “We know Basel I and Basel II didn’t work – and there is a fear that Basel III will go the same way,” he told CNBC. “Some of these regulations are incredibly complex. It is understood by some lawyers but not understood by bankers.

At 1000 GMT, the FTSEurofirst 300 index of top European shares was up 0.01 percent at 1,258.33 points. The index has slipped about 1.3 percent since hitting a five-year high last week. The euro zone’s blue-chip Euro STOXX 50 index was up 0.04 percent, at 2,924.22 points. Investors remained on edge as congressional authorisation for the U.S. government to spend money runs out at the end of the fiscal year on Sept. 30, and a small number of Tea Party-backed U.S. senators have been threatening to stall a bill to renew the funding. The market has also been fretting about next month’s negotiations in Washington to raise the federal debt ceiling to prevent a default, as well as the outlook for the Federal Reserve’s stimulus measures after the Fed decided not to scale back the measures last week. “Investors are still confused about the Fed’s monetary policy, and now the focus is switching to negotiations between Democrats and Republicans in Washington. After such a rally, people are now very cautious,” said Guillaume Dumans, co-head of research firm 2Bremans. The Fed’s quantitative easing programme has been a major factor behind the global equity market rally of the past year, which has propelled European shares to a 12-month forward price-to-earnings ratio of 13, a level not seen since October 2009, according to Thomson Reuters Datastream. The broad STOXX Europe 600 is up about 5 percent so far this month, on track to post its best monthly performance in two years, and its best month of September since 1997. The sharp rise in the valuation ratio, however, suggests that the equity rally has been more about excess liquidity in the financial markets than underlying company profit growth.

Somali jihadists recruit in U.S., Canada, Europe

A Kenyan security officer takes cover as gunfire and explosions are heard from the mall on September 23. Heavy smoke rises from the Westgate Shopping Mall on September 23. Medics take cover behind a tree as gunfire and explosions are heard from the Westgate Mall on September 23. A Kenyan police security officer runs for cover as heavy smoke rises from the mall on September 23. A paramedic runs for cover outside the mall on September 23. People run for cover outside the mall after heavy shooting started on September 23. Kenyan security forces crouch behind a wall outside the mall on September 23. Soldiers take cover after gunfire near the mall on September 23. Kenyan paramilitary police officers patrol the area near the mall on Sunday, September 22. Soldiers from the Kenya Defense Forces arrive outside the Westgate Mall on September 22. A woman shields a baby as a soldier stands guard inside the Westgate Mall on Saturday, September 21. A rescue worker helps a child outside the mall. People who had been hiding inside the mall during the gunfire flee the scene. An armed official takes a shooting position inside the mall.

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