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Basel III Indicates Tighter Capital Requirements for Larger Banks

Basel III Indicates Tighter Capital Requirements for Larger Banks

Kevin Jin,

THE TAKEAWAY: Fed meeting on Basel III suggests higher capital requirements for larger banks > EURUSD BULLISH

The Fed held its open board meeting today on Basel III, which is a regulatory framework concerning bank capital. The Fed will move to require higher capital requirements for the eight largest US banks, which are deemed systematically important to the US economy. These large banks will need to maintain a total capital ratio of 8% of risk-weighted assets. Large banks may also be penalized for excess reliance upon short-term funding, in an attempt to stem short-term volatility in funding. On the other hand, smaller and medium sized banks will be less scrutinized. These smaller financial institutions will be allowed some leeway in their capital requirements; trust-preferred securities will be counted towards these capital requirements.

EURUSD 1-minute Chart: July 2, 2013

Basel_III_Indicates_Tighter_Capital_Requirements_for_Larger_Banks_body_Picture_1.png, Basel III Indicates Tighter Capital Requirements for Larger Banks

Charts Created using Marketscopeprepared by Kevin Jin

The EURUSD moved higher during the Fed meeting on Basel III. The net change is the EURUSD as a result of the Basel III is likely muted, as traders were watching US Factory Orders data, which was released at 14:00 GMT (10:00 EDT on chart above). The EURUSD is also trading near the important 1.3000 psychological level.

--- Written by Kevin Jin, DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.