Canadian banks have the best balance sheets among all world banks, but the top 5 Canadian banks can’t increase their dividends until they learn from Basel III what the new regulations are going to be concerning capital requirements for banks.
Not long after Basel III’s new capital and liquidity rules are announced, banks will likely be raising their dividends again. This means you should look forward to Basel 3 and even get excited about it.
Next Most Likely Canadian Bank Dividend Increase
Basel III (3) Capital and Liquidity Rules
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As part of the massive pressure for global financial reform in the wake of the embezzlement of the world’s wealth following the credit crisis/ Lehman crash, an international set of banking rules has been developed, and is still in the process of being developed, concerning the financial buffers or capital cushions that banks need to have set aside in order to protect themselves from future systemic financial and market risks.
Basel 3 is not a bank tax. The global bank tax idea was shot down, thanks largely to Canadian Finance Minister Jim Flaherty’s incessant opposition on behalf of banks and banking systems (like Canada’s) who were always solid and had no part in the deception and robbery of the middle class.
One of Basel 3’s rules pertains to what sorts of investments banks are allowed to claim as part of their capital. Basel 3 recommendations are striving to wean banks off of riskier investments and short-term funding in order to attain more financial stability. Another rule pertains to how much capital banks have to hold in order to be able to survive at least a month-long, severe liquidity crisis. In other words, it has to be illegal for banks not to have emergency funds.
Basel 3’s deadline is the end of 2010, with a view to implementing the changes by 2012.
Meanwhile, banks around the world (i.e., U.S. and European banks) are complaining, resisting, and lobbying against all of this regulation due to what they claim will put a damper on economic recovery. I don’t buy this, since we’re already well aware of just how much fresh capital and cashflow the banks are sitting on. Additionally, US banks still haven’t lent out any of the money they’ve received from the Fed. Sounds like they themselves are the source of the weak recovery, not any regulation that has yet to be passed.
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{ 3 comments }
A great overview ME. Yes, I’m getting excited just thinking about the (dividend) possibilities! I’ve got 3 of the big 5 myself. You?
Have you been tempted to buy any US banks, such a Bank of America? (Was >$50 stock…not so long ago).
No way. We’ve got some good international exposure already with BNS so I see no personal need to get into US banks at this point, especially if the US is headed into a longer deflationary scenario. Not all the deleveraging has taken place yet, either.
Personally, I’m glad that Basel stepped away from the “bank tax”. Despite it seeming like a systematic change, it would surely turn out very uneven and every country would tax their banks differently, also depending on the power of their respective lobbyist groups, etc. For those reasons, I believe that the newly proposed “embedded contingent capital” may be a better solution because its usage will be up to the bank, although it is still difficult to predict how effective and efficient it will be when it comes off of the drawing board.
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