Basel III Rules Crimp US Banks’ Lending

Steep increases in capital costs driven by new reserve requirements are forcing US banks to discriminate in their allocation of capital to companies with the most potential in terms of overall, long-term profitability, suggests Greenwich Associates.

According to the firm’s latest report, entitled ‘Global Banks are More Selective with Large Corporates’, it’s a buyers’ market for credit and American companies are spreading their business to ensure adequate and reliable sources of credit and other essential bank services.

This is working against banks’ efforts to be more selective.

In corporate lending, for example, most large banks are focusing their efforts and capital on companies in which they are one of the lead relationships to capture a substantial ‘share of wallet’ across all bank products and ensure adequate levels of profitability.

Many non-US and regional banks focus their strategies on being among the Top Five banks that are within the inner circle. This strategy does not require as much capital, yet still delivers good returns on a multi-product basis.

This dynamic extends to cash management and other business lines as well.

“The reality is, in today’s marketplace you have to be important to a bank to qualify for full service,” said Greenwich Associates consultant John Colon. “And importance is measured in revenue and share of wallet.”


Related reading