BANKS have gained some time and flexibility in meeting the Basel III liquidity requirements, now that the rules will come into effect four years later and the definition of a "high-quality liquid asset" has been expanded. But prospects for the banking industry are grim in 2013, especially for banks in the developed world. Squeezed by sluggish economic growth, strict new regulations and seemingly endless litigation, profits will remain elusive. American banks will be somewhat less stingy than in recent years, although loans will grow by only 4% in 2013. European lenders will cut credit lines, hoard funds, and generally hunker down as the region’s sovereign debt crisis rumbles on. Japan’s banks will also lend less. By contrast, banks in emerging markets will benefit from a flood of customers joining the formal financial system for the first time, as well as burgeoning demand for advisory and investment-banking services from maturing companies. Rising incomes and consumption in emerging markets will give many consumers the confidence to start borrowing.
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