Resources for Basel II Capital Accord (Basel II)

Banks reel from high cost of borrowing

www.financialnews-us.com

The cost at which banks raise capital on the wholesale markets has been drawn into focus in the past six months as the credit crisis wreaked havoc in the sector, leaving institutions reeling from multi-billion dollar writedowns.
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Financial spreads compared to corporate spreads

US banks Citigroup, JP Morgan and Merrill Lynch reported the latest round of quarterly losses from the credit crisis last week, further undermining investor confidence in the sector and sustaining the record highs that banks pay for capital.

Merrill Lynch equity analysts said in a report last month the credit crisis had forced European banks’ borrowing costs in the debt markets – as recorded by Merrill Lynch indices for financials and non-financials/industrials – higher than their corporate clients for the first time since the corporate bond market took off in 2000.

The development is unusual, given that banks should be paying less because they are extensively regulated, heavily capitalised and well-rated compared with many non-financial corporates, according to the analysts.

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