Banks face five year struggle to deleverage

Ben Southwood
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BRINGING their debts down to sustainable levels will take big European banks at least five more years, data put out today suggested.

Seventy-one per cent of financial institutions surveyed by Deloitte said they expected deleveraging to go on for at least half a decade, with two thirds of respondent banks citing regulator demand as being an “important” or “extremely important” driver.

After capital regulations, liquidity constraints were the next biggest driver of European bank deleveraging – just over half of respondents called it an “important” or “extremely important” cause.

But bank deleveraging will go almost nowhere to undoing the gigantic increase in leverage during the boom years.

Between the end of 2000 and the end of 2008 UK banks’ leverage went up more than five times, but current European deleverage plans represent only about 7.5 per cent of total assets.