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11/02/2024 03:28:37 pm

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Bank Says New Funding Rule Makes Trading More Expensive

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(Photo : Wikimedia)

A new global rule is being proposed to force banks into safer funding, which will reportedly make short-selling more expensive.

Industry analysts predict that the new rule will create a massive dip in the shares of investors since several equity transactions will be more costly.

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In a letter released by two major industry lobbyists, Global Financial Markets Association and the Institute of International Finance, it said the rule would also make it more difficult for banks to provide stock exchanges because of the steeper price.

Because of the new funding rule, banks are trying to avoid a repeat of the financial crisis in 2008 by trying to create banking modifications by amending the Basel Committee's Net Stable Funding Ratio (NSFR).

The letter, which was addressed to the Basel Committee, stated that banks' are beginning to have "serious concerns" regarding equity trading under the NSFR management.

NSFR could create a major "increase in transaction costs across equity markets for all participants," according to the letter.

The NSFR is a banking committee whose aim is to make sure that banks maintain a minimum and stable funding relative to its assets.

The amendment in the NSFR is set to take effect in 2018, a move that is expected to prevent funding restrain such as the one that lead to the failure of Northern Rock's British bank.

The measure comes at the same time as Liquidity Coverage Ratio's move to ensure that bank's maintain enough assets that are easily convertible to cash.

In January, financial regulators proposed a revised version of the NSFR, saying the revisions will be essential in ensuring that banks become more resilient.

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