Global regulators reach Basel capital ratio compromise

Global regulators reached a compromise on capital ratios for banks that would introduce higher capital requirements over a five to 10 year period starting in 2013, a German central bank official said.

The Basel Committee on Banking Supervision drafted key points of the so-called Basel-III reforms, Bundesbank Vice-President Franz-Christoph Zeitler told reporters in Frankfurt on Wednesday. The proposal would be the basis for the September 12 meeting of the group of governors of central banks and heads of banking supervision authorities, who would decide on the reform framework.

Policymakers are seeking to raise the quality and quantity of reserves held by banks to avoid another financial crisis. Governments have been wrangling over the details with France and Germany among those concerned that their banks and economies wouldn’t be able to bear the burden of tougher capital requirements until economic recoveries took hold. Group of 20 leaders will meet in November in Seoul to approve the rules.

 

Die Zeit newspaper reported on September 6 that the Basel Committee met to discuss a proposal demanding a minimum capital ratio for financial institutions of six per cent as well as a “conservation buffer” of three per cent for bad times. The proposal would have required an additional “anti-cyclical capital buffer” of three per cent during “boom times,” the newspaper said.

“As to the level of capital ratios, the committee has found a compromise as compared to the proposal,” Zeitler said. He didn’t reveal any numbers.

Financial crisis
The Basel-III reforms aim to make banks worldwide more resilient in the light of the experiences during the financial crisis.

European Central Bank Governing Council member Axel Weber on Wednesday said higher capital requirements for banks won’t curb economic expansion, echoing the findings of a report released last month by the Basel Committee.

“Recent studies, which are based on a comprehensive cost- benefit analysis, show that the path we walk on isn’t too risky,” Weber said in a speech in Frankfurt on Wednesday. “Therefore, we don’t have to expect that the planned increase in capital ratios will hamper the real economy, in particular given generous transition periods.”

Weber, who is also president of Germany’s Bundesbank, said that while “not everyone will be able to push through their national position,” he is “confident” the proposals will be concluded this weekend.

US implementation
He said he wanted the US to follow through on implementation of the agreement. “It can’t be that we’ll implement Basel in Europe and not in the US,” he said.

Germany declined in July to sign up to a preliminary agreement on the rules at a meeting of central bankers and supervisors at the Bank for International Settlements in Basel, Switzerland, reserving its position until the decisions on calibration and phase-in arrangements are finalised in September.

The Basel committee, which represents central banks and regulators in 27 nations and sets capital standards for banks worldwide, was asked by leaders from the G-20 nations to draft new rules after financial crisis triggered the deepest global recession since the Great Depression.

In July, the panel softened some of its proposed capital and liquidity rules while introducing new restrictions on how much lenders can borrow as part of an effort to rein in their risk taking.

It agreed to allow certain assets, including minority stakes in other financial firms, to count as capital and set a leverage ratio to apply to banks globally for the first time. The rule could become binding by 2018, pending further adjustments to the method of calculating banks’ assets.

France and Germany led efforts to weaken rules proposed by the committee in December, according to bankers, regulators and lobbyists involved in the talks. The US, Switzerland and the UK resisted that push and July’s announcement reflected the give and take between the two sides.