Financial Regulatory Forum

G20 toughens bank capital standards-source

September 5, 2009

Lighting engineers set up a platform ahead of the G20 Finance Ministers meeting in London September 4, 2009. The G20 will promise this weekend to keep economic support packages in place until recovery is certain and seek to reassure financial markets they have credible plans to withdraw the stimulus when appropriate.     REUTERS/Kevin Coombs     (BRITAIN BUSINESS POLITICS)   LONDON, Sept 5 (Reuters) – Group of 20 finance chiefs agreed on Saturday to back a U.S. plan for banks to hold more and higher quality capital, resolving differences over which set of rules to pursue going forward, a G20 source told Reuters. 
   Divisions had emerged at the meeting in London over U.S. Treasury Secretary Timothy Geithner’s proposals for reform of how much capital banks’ set aside, with some European officials saying changes already made to the existing “Basel II” rules did the job.
   But a U.S. Treasury official said earlier that Washington is committed to implementing Basel II and a G20 source said that the French were prepared to accept proposals on leverage ratios and capital requirement.
   “Banks will have tighter constraints on the high quality of core Tier One capital,” the source said. “This means banks will have to hold more capital and higher capital to act as a buffer.”
   Under Basel II, a bank must hold at least 8 percent in capital, of which at least half must be in the form of top quality Tier 1 assets such as equity. Since the credit crunch, banks have  become much more conservative and are holding much higher levels of Tier 1 capital. 
   The U.S. plan put forward this week by Treasury Secretary Timothy Geithner calls for higher capital in general, particularly for big institutions but does not give a specific figure.
   The G20 has also agreed that the Financial Stability Board will develop “global living wills” for banks — “steps that will allow depositors to be protected while the investment side is wound down,” the source said.
   ((G20 newsroom))
 Keywords: G20 FINANCE/CAPITAL 
  
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 Saturday, 05 September 2009 14:00:06RTRS [nL5216383] {EN}ENDS

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