Financial ETFs Move on Global Banking Reform

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 |  Includes: IPF, IXG, IYG, KCE, XLF
by: Tom Lydon

Talk about a do-over. The global financial industry was the recipient of a historic regulatory remake designed to tamp down on risk. The implications for financial ETFs could reach far and wide.

Everything from mortgages to commercial loans to credit cards could be impacted in coming years as a result. The new rules essentially state that banks need to have more capital on hand. Damien Paletta and David Enrich for The Wall Street Journal report that the new rules are designed to rein in the kinds of risky activities that contributed to the financial crisis that nearly took out the global economy.

But how excited should we really be getting right now?

Banks will actually have until 2019 before the new measures and rules – called Basel III requirements – are completely in force. Associated Press reports that the increased capital rules could mean less money available to lend to businesses and consumers.

The European Central Bank Chairman also expressed confidence that the rules would be put in place in the United States, as well, even though authorities here didn’t completely adopt the last round of Basel rules.

Unlike the financial reform bill passed this summer, this international bill may have a more sweeping impact that extends beyond domestic financial ETFs. The impact, too, depends on which countries adopt the rules. If the United States ignores them, the impact on domestic financial ETFs may be far different than the impact on global ones.

  • iShares Financial Services (NYSEArca: IYG)
  • KBW Capital Markets (NYSEArca: KCE)
  • Financial Select Sector SPDR (NYSEArca: XLF)
  • SPDR S&P International Financial Sector ETF (NYSEArca: IPF)
  • iShares S&P Global Financials (NYSEArca: IXG)

Tisha Guerrero contributed to this article.

Disclosure: None