WS gets life from SEC rule

A new regulation relieving capital restraints may enable the biggest U.S. securities firms to make the rest of 2007 exceptional for shareholders. Alternative net capital requirements, passed in 2004 by SEC to keep WS firms competitive with their counterparts in European Union. U.S commercial banks are receiving a similar break from the Basel II agreement, set to take effect as early as next year. --- new capital adequacy standards. Under the old regime, securities firms had to reserve a set percentage of every dollar of capital ast risk to ensure solvency in the even of a market collapse or failure of a major event. The new rule takes a more nusanced approach. Reserves are determined according to a combination of risks including losses from credit deterioation, adverse market movements, inadequate internal controls and changes in legislation. They permit securities firms to use non-cash assets, such as derivative contracts, to offset risk. Most money freed up as a result might go toward trading or principal investments. Those business have fueled a tripling in WS earnings since the investment-banking slump of 2001 and 20023 and now account for about 50% revenue, up from 40% two years ago. They are using their own capital and increasing leverage and as long as funding costs are low, that's profitable.