A $1 trillion rescue package to stabilise the euro could bolster European banks' negotiating power as they attempt to fight stricter regulatory capital requirements they expect will hurt economic growth.
Europe's lenders are already significant holders of sovereign euro debt and will be relied upon to buy more state-guaranteed debt as part of the rescue package, which is likely to see them push for extra concessions, analysts said.
"What there needs to be is a realisation among politicians that you cannot legislate and regulate the banks' profitability away and expect them to keep buying your debts," MF Global bank sector analyst Simon Maughan said.
Proposals to tighten bank capital requirements by the Basel Committee on Banking Supervision, due to be implemented by the end of 2012, have attracted criticism from banks, including BNP Paribas, Deutsche Bank and RBS.
The new euro rescue package, which will also see the European Central Bank buying euro sovereign debt, could support the banks' view that the recovery is already fragile enough without extra regulation.
"This highlights how fragile the recovery is … We know that Europe is in a tight spot and the last thing you want to do is put undue further pressure on the banks," said a London-based financial analyst.
DEADLINE PLEA
Although the consultation period for the proposed "Basel III" requirements is over, banks could use the rescue package to extract better terms on the implementation deadline.
The G20 group of leading countries agreed last year to introduce Basel III by the end of 2012 but included some wiggle room as the new rules will only take effect if economic recovery is assured.
The rescue package could also help banks argue against tough new bank trading book rules from Basel, due in January 2011, which will require far higher amounts of capital to cover risks like structured products that turned toxic in the financial crisis.
The Association for Financial Markets in Europe, which represents top banks like Goldman Sachs, said last month the trading book rules should be delayed due to economic uncertainty. The Basel Committee has said it has no plans for such a delay.
However, even if banks are expected to use the package as leverage in negotiations, not everyone believes the balance of power between government and lender has fundamentally changed.
"Banks in many EU countries are still dependent on state help. I do not think that the balance of power between both sides has changed significantly," said Merck Finck analyst Konrad Becker in Munich.
"The main beneficiaries of this rescue package are banks," he added.
