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Basel eases bank capital raising fears, shares

13 September 2010 10:59 (UTC +04:00)

Baku â€“ APA-Economics. New bank capital rules agreed by global regulators brought relief to the world’s banks on Monday although one of the architects said the sector would have to raise hundreds of billions of euros eventually, Reuters reported.

The new requirements, known as Basel III, will demand banks hold top-quality capital totalling 7 percent of their risk-bearing assets but a long lead-in time eased fears that lenders will have to rush to raise capital.

The new capital ratio will be a substantial increase from the current requirement of 2 percent, but is significantly lower than what banks had feared earlier this year and comes with a phase-in period extending in some cases to January 2019.

Banks will not be required to meet the minimum core tier one capital requirement, which consists of shares and retained earnings worth at least 4.5 percent of assets, until 2015. An additional 2.5 percent "capital conservation buffer" will not need to be in place until 2019.

Most banks in the rest of Asia have capital levels well above the minimum levels under Basel III. Clarity on the Basel rules could see them become bolder in reinstating or raising dividends.

But there remains uncertainty over whether extra measures will be imposed on systemically important banks. A separate body, the Financial Stability Board, is due to make recommendations by November on options including possible surcharges to tackle the "too big to fail" problem.

There will also be an additional counter-cyclical capital buffer of up to 2.5 percent, which national regulators will apply during periods of excess credit growth.

The Basel III agreement was reached in Switzerland by central bank governors and top supervisors from 27 countries, after a year of horse-trading and lobbying that involved banks and governments seeking to protect their national interests.

Along with the capital standards, Basel III includes a range of reforms agreed earlier this year to reduce risk-taking by banks, including rules on how liquid banks’ assets must be and how banks must treat tax assets on their books. Some changes were watered down in July after strenuous lobbying by banks.