Past Lessons Keep Asia's Banks Safe

Asian banks (outside Japan) fare better than their U.S. and European counterparts when their Tier 1 ratios are compared under proposed Basel 3 standards--thanks to lessons learned from the 1997-98 financial crisis, says the Wall Street Journal.

 

Basel 3 requires banks to hold more equity capital and maintain greater liquidity, a move that is meant to prevent the global economic crisis from recurring. The Journal notes that banks facing tighter Basel 3 capital requirements will have even less money to lend, potentially causing a dangerous contraction.

 

Another stab is the Obama administration's proposal to restrict large commercial banks with a U.S. presence from engaging in significant proprietary trading and owning hedge funds or private-equity funds.

 

While the moves spell trouble for U.S. and European banks, Asia's banks have little to worry about, says the Journal. After the 1997-98 financial crisis, many significantly reduced their debt levels, and regulators have gotten better at keeping them in line. Most of Asia's banks are well capitalised and are less dependent on wholesale funding, adds the Journal.


 

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