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Global bankers agree new capital reserve rules | Global bankers agree new capital reserve rules |
(40 minutes later) | |
Central bank governors and senior regulators have agreed new rules designed to prevent a repeat of the recent financial crisis. | Central bank governors and senior regulators have agreed new rules designed to prevent a repeat of the recent financial crisis. |
At a meeting in the Swiss city of Basle, they agreed a deal requiring banks to hold more capital in reserve. | At a meeting in the Swiss city of Basle, they agreed a deal requiring banks to hold more capital in reserve. |
BBC business editor Robert Peston says the deal is an important milestone in banking reform. | BBC business editor Robert Peston says the deal is an important milestone in banking reform. |
He says it should mean banks having a greater ability to absorb losses in future crises without taxpayer help. | He says it should mean banks having a greater ability to absorb losses in future crises without taxpayer help. |
Lord Turner, chairman of the UK's Financial Services Authority, said the new rules represented "a major tightening of global capital standards and will play a major role in creating a more resilient global banking system". | Lord Turner, chairman of the UK's Financial Services Authority, said the new rules represented "a major tightening of global capital standards and will play a major role in creating a more resilient global banking system". |
European Central Bank chief Jean-Claude Trichet said the new regulations - called Basle III - were "a fundamental strengthening of global capital standards". | European Central Bank chief Jean-Claude Trichet said the new regulations - called Basle III - were "a fundamental strengthening of global capital standards". |
"The transition arrangements will enable banks to meet the new standards while supporting the economic recovery," he added. | "The transition arrangements will enable banks to meet the new standards while supporting the economic recovery," he added. |
In a joint statement, the US Federal Reserve and other major US banking regulators said the deal "provides for a more stable banking system that is less prone to excessive risk-taking". | |
Low levels of capital relative to assets were a major factor in the recent global financial crisis. | Low levels of capital relative to assets were a major factor in the recent global financial crisis. |
The agreement, due to come into effect from 2013, still needs to be ratified by the heads of government of the G20 group of nations at their summit in November. | |
The amount of common equity - the best capital for absorbing losses - that banks have to hold will rise from 2% of their loans and investments to 7%. | |
The 7% includes a 2.5% so-called "conservation buffer", which will be there to protect banks against periods of difficulty or stress. | |
If banks' capital ratios fall below 7%, regulators may place restrictions on their ability to pay dividends and bonuses. | |
The new requirement should prove little problem for UK banks, as it is in fact lower than the 8-9% ratio currently held by them. | The new requirement should prove little problem for UK banks, as it is in fact lower than the 8-9% ratio currently held by them. |
It is also well below the 10% level that was being pushed for by the UK, the US and Switzerland. | It is also well below the 10% level that was being pushed for by the UK, the US and Switzerland. |
The updated rules will mean some banks will need to raise a lot more money from shareholders. | The updated rules will mean some banks will need to raise a lot more money from shareholders. |
The rules may have the effect of limiting lending, at least in the short term, as most banks - particularly those in Europe - have too little capital for the loans they have already made. | The rules may have the effect of limiting lending, at least in the short term, as most banks - particularly those in Europe - have too little capital for the loans they have already made. |