Global regulators, aiming to prevent any repeat of the international credit crisis, agreed on Sunday 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 totaling 7 percent of their risk-bearing assets, up from just 2 percent under current rules.
The rules may oblige banks to raise hundreds of billions of US 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 (US$141 billion) of additional capital.
However, 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 toward less risky business strategies and ensure they have enough reserves to withstand financial shocks without needing taxpayer bailouts.
However, 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 US as those regions recover from the credit crisis.
Under Basel III, banks will have to hold top-quality capital — known as “core Tier 1” capital, and consisting of equity or retained earnings — worth at least 4.5 percent of assets.
They will also have to build a new, separate “capital conservation buffer” of common equity; this will be 2.5 percent of assets, bringing the total top-quality capital requirement to 7 percent.
If they draw down the buffer, they will face curbs on the bonuses and dividends which they can pay out.
Another provision of Basel III, sharply criticized by some banks, will require them to build a separate “countercyclical buffer” of between 0 percent and 2.5 percent when the credit markets are booming.
National regulators will decide when economies have entered such periods of “excess aggregate credit growth.”
They hope the buffer will slow lending when credit markets threaten to overheat, preventing dangerous bubbles from forming.
Although banks did not get their way on countercyclical buffers, they did appear to succeed in convincing regulators to provide generous transition periods.
The Tier 1 capital rule will take full effect from January 2015, with the capital conservation buffer phased in between January 2016 and January 2019. Some analysts said this showed regulators were caving in to the banks.
“The phasing-in period for the new capital requirements is surprisingly long, which will add to the skepticism about the robustness of the bank capital enhancement efforts,” said Mohamed El-Erian, co-chief investment officer of bond investment giant PIMCO.
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.
After refusing in July to endorse draft Basel III rules, Germany won a key concession on Sunday, receiving a 10-year grace period from 2013 to phase out certain types of bank capital, such as “silent participations,” which are widely used by its state-backed banking sector, but little used elsewhere.
Leaders of the Group of 20 leading countries, blaming the global credit crisis partly on risky trading by banks, called on regulators last year to work on tougher bank capital rules. The G20 leaders are set to endorse Sunday’s deal when they meet in Seoul in November.
Most of the world’s top banks have to a large degree repaired their balance sheets since the crisis, so they are not expected to need to rush to raise funds in response to Basel III.
However, Deutsche Bank, Germany’s flagship lender, announced at the weekend that it planned to raise at least 9.8 billion euros to buy the rest of Deutsche Postbank. The fund-raising is seen partly as an effort to tap markets before any Basel-induced cash calls by other banks.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique