Banks will be told to maintain 7 per cent tier one capital
Friday 10 September 2010
European banks will be forced to maintain a tier one capital ratio of at least 7 per cent, according to reports ahead of this weekend's meeting between financial regulators and ministers in Switzerland.
The new rules, which have been drawn up by the Basel Committee on Banking Supervision are likely to be endorsed on Sunday. When rubber-stamped, banks will be forced to hold a minimum of £7 in their own coffers for every £100 in customers' accounts. The measures will also need to be endorsed by the G20.
Weak tier one capital ratios were roundly blamed for the pressure felt by a number of financial institutions during the credit crisis – Royal Bank and Scotland and Northern Rock each had very low tier one capital ratios when the government was forced to stage rescues of both.
Britain's major banks have boosted their financial buffers in the past two years, and all are already well above the 7 per cent threshold. Nonetheless, the level will attract criticism from a number of governments, not least the Coalition, which has called on regulators to impose a tougher 10 per cent level. Switzerland and the United States were also pushing for stronger ratios.
Some European administrations have called for less stringent levels, however. German banks traditionally maintain lower tier one capital ratios and Berlin has called for other measures to be implemented. German banks are expected to find it more difficult to hit 7 per cent.
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