G-20 split on plan to raise bank capital, says official

The Group of 20 nations is split on the scale and timing of increases in bank-capital requirements that have been under discussion since governments were forced to bail out lenders, an official from a G-20 government said.

Countries such as the US whose economies are largely financed by markets want banks to be required to hold more assets on their balance sheets to buffer against future crises, said the official, who will attend this weekend’s talks of G-20 finance chiefs in Busan, South Korea. Policy makers in continental Europe, where banks provide more financing, are concerned that too-high reserves risk choking off growth, the official told reporters on condition he not be named.

The G-20 countries, which collectively account for about 85 per cent of global gross domestic product, have set themselves a December deadline to agree on new rules on capital and liquidity following the worst financial crisis since the Great Depression. UBS AG estimates that the proposals under discussion may force banks to raise as much as $375 billion in fresh capital.

The European Central Bank calculates that at the end of 2007, the stock of outstanding bank loans to consumers and companies stood at around 145 percent of GDP in the euro area and 63 per cent in the US. By contrast, the amount raised from issuing debt in markets totaled 81 per cent of GDP in the euro area and 168 per cent in the US.

Differences Narrowing
US Treasury Secretary Timothy F Geithner told reporters in Washington yesterday that “differences are narrowing” on capital rules, although he didn’t anticipate a deal being struck at the Busan talks. A “common, consistent, cooperative” approach would help strengthen the global economy, he said.

The Basel Committee on Banking Supervision, which sets international banking rules, proposed in December that lenders increase the number and quality of capital buffers, boost liquidity reserves and adhere to stricter leverage ratios.

The proposals “will result in more resilient banks and a sounder banking and financial system” Nout Wellink, then- chairman of the 27-nation committee, said at the time in a statement.