Bank watchdogs agree Basel III capital overhaul

Regulators double reserve ratios to protect against collapses

European regulators and central bank governors yesterday demanded banks across the regions more than double their capital reserves to protect against future shocks in the financial markets.

The Group of Governors and Heads of Supervision were locked in negotiations throughout the day at the Bank for International Settlementsin the Swiss city of Basel, as they set about hammering out the details of the so-called Basel III reforms.

The Basel Committee on Banking Supervision, which oversaw the meeting, last night announced the talks had been successful.

European Central Bank president Jean-Claude Trichet, who chaired the meeting, said: "The agreements reached today are a fundamental strengthening of global capital standards." He added that the contribution of the new rules to long-term financial stability and growth "will be substantial. The transition arrangements will enable banks to meet the new standards while supporting the economic recovery".

The reforms, which fill in the gaps left by the general Basel III agreements made in July, will demand the banks have a "core" tier-one capital holding – the equity they keep in reserve – of 4.5 per cent, up from 2 per cent. There will be a further buffer of 2.5 per cent. Institutions that fail to meet the buffer will be blocked from dividend payments.

Nout Wellink, chairman of the banking supervision committee and president of the Netherlands Bank, said: "The combination of a much stronger definition of capital, higher minimum requirements and the introduction of new capital buffers will ensure that banks are better able to withstand periods of economic and financial stress, therefore supporting economic growth." The agreement comes just days before the second anniversary of the collapse of Lehman Brothers. The new rules must be ratified by the G-20 nations in Seoul in November, before they are phased in by January 2015.

Yet, some fear that forcing banks to hold more of their capital in reserve could slow a recovery and increase the cost of finance. Before yesterday's agreement Alessandro Profumo, chief executive of Italian banking group Unicredit and head of the European Banking Federation (EBF), warned the policy-makers against imposing draconian levels of capital. He said in a letter to Mr Trichet the EBF's members were concerned about the effect these measures could have on lending. "A well-balanced calibration of the proposals will be crucial if we are not to put European jobs and growth at risk," he added.

Angela Knight, the head of the British Bankers Association warned that the cost of financing will go up, saying that just like any other business, if a bank's fixed costs go up, "then so does the price of its product".

Some banks have already begun preparation. Deutsche Bank yesterday confirmed it was to launch a rights issue to raise at least €9.8bn (£8.09bn). While the majority was to be used to secure the acquisition of Postbank, some of the proceeds are expected to bolster the group's balance sheet. Analysts expect banks across Europe to comply with the regulations.

Despite the turmoil among some of the UK's banking groups during the downturn, the latest European reforms will have little impact.

The City regulator, the Financial Services Authority, already demands the banks hold double the previous level of the European minimum. Lloyds Banking Group is the most lightly capitalised, with a tier-one capital ratio of 9 per cent.

Start your day with The Independent, sign up for daily news emails
election 2015The 10 best quotes of the campaign
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'