Banks across Europe rose hard yesterday as the Basel Committee overseeing new rules on leverage and capital adequacy watered down a key leverage ratio.
‘The revised definition includes a number of important concessions for banks,’ said Deutsche Bank analyst Jim Reid.
The decision, agreed on Sunday by central bankers meeting in Switzerland, will particularly benefit investment banks with large fixed income books.
Deutsche Bank rose almost 5% on the news while Barclays rose by more than 3%, closely followed by Royal Bank of Scotland. Barclays is now trading at a six-month high while Deutsche Bank stands at a near two-year high.
The STOXX 600 Banking index rose more than 1% to its highest point since May 2011.
The decision to remove cash collateral against trades from the basket of assets which must be balanced by bank equity will put the European institutions on a more level playing field with the US.
Both Deutsche and Barclays had scrambled over the second half of 2013 to bring their balance sheets into compliance with the rule, and would have had to reduce their trading books had they not been able to do so.