BASEL, Switzerland (Reuters) – Global regulators, aiming to prevent any repeat of the international credit crisis, agreed yesterday to force banks to more than triple the amount of top-quality capital they must hold in reserve.
The biggest change to global banking regulation in decades, known as “Basel III,“ will require banks to hold top-quality capital totalling 7 per cent of their risk-bearing assets, up from just 2 per cent under current rules.
The rules may oblige banks to raise hundreds of billions of dollars of fresh capital over the next decade. Germany’s banking association, for example, has estimated its 10 biggest banks may need 105 billion euros ($141 billion) of additional capital.
But to ease the burden on banks and financial markets, regulators gave the banks transition periods to comply with the rules. These periods, extending in some cases to January 2019 or later, are longer than many bankers originally expected.
“The agreements reached today are a fundamental strengthening of global capital standards,” European Central Bank President Jean-Claude Trichet said. “Their contribution to long-term financial stability and growth will be substantial.”
Regulators hope the changes will push banks towards less risky business strategies and ensure they have enough reserves to withstand financial shocks without needing taxpayer bailouts. But banks say the new requirements could reduce the amount of money they have available to lend out to companies, slowing economic growth in Europe and the United States as those regions recover from the credit crisis.
