Basel IV spurs relentless growth of private credit
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Basel IV spurs relentless growth of private credit

More banks have announced partnerships with asset managers to place loans into private debt funds that offer investors better risk-adjusted returns than bank equity.

Photo: iStock

Some banks describe it as the Basle III endgame; regulators prefer Basel 3.1; almost every banker Euromoney talks to calls it Basel IV.

Whatever you name it, imposing an output floor that restricts banks’ use of internal ratings models to cut their regulatory capital requirements against counterparty credit risk, is a gamechanger for banking.

Years in the devising, the new rules were meant to be implemented in 2023. Bank lobbying has pushed that back. Banks know that the amount of capital they will have to hold against risk-weighted assets is going to go up, perhaps quite sharply.

[SocGen’s partnership with Brookfield] provides an entirely new answer to the growing demand for private debt and will have a positive impact on the real economy
Slawomir Krupa, Societe Generale

The US Federal Reserve, still seeking comment on its proposed version of the rules, sees an aggregate 16% increase in common equity tier-1 capital for US banks with over $100 billion of assets.

This comes at the very moment when capital is more expensive than ever, costing perhaps 13% or 14%, even for national champion banks in Europe.

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