Banks will have to keep more reserves from 2013

FRANKFURT: Global regulators reached a compromise on capital ratios for banks that will introduce higher capital requirements over a 5-10 year period starting in 2013, a German central bank official said. The Basel Committee on Banking Supervision drafted key points of the so-called Basel III reforms, Bundesbank vice president Franz-Christoph Zeitler told reporters in Frankfurt on Wednesday. The proposal will be the basis for the September 12 meeting of the Group of Governors of Central Banks and Heads of Banking Supervision Authorities who will decide on the reform framework.

Policy makers are seeking to raise the quality and quantity of reserves held by banks to avoid another financial crisis. Governments have been wrangling over the details with France and Germany among those concerned that their banks and economies wouldn’t be able to bear the burden of tougher capital requirements until economic recoveries took hold. Group of 20 leaders meet in November in Seoul to approve the rules.

Die Zeit newspaper reported September 6 that the Basel Committee met to discuss a proposal demanding a minimum capital ratio for financial institutions of 6% as well as a “conservation buffer” of 3% for bad times. The proposal would have required an additional “anti-cyclical capital buffer” of 3% during “boom times,” the newspaper said. “As to the level of capital ratios, the committee has found a compromise as compared to the proposal,” Zeitler said. He didn’t reveal any numbers. The Basel III reforms aim to makes banks worldwide more resilient in the light of the experiences during the financial crisis. European Central Bank Governing Council member Axel Weber on Wednesday said higher capital requirements for banks won’t curb economic expansion, echoing the findings of a report released last month by the Basel Committee.

“Recent studies, which are based on a comprehensive cost- benefit analysis, show that the path we walk on isn’t too risky,” Weber said in a speech in Frankfurt on Wednesday. “Therefore, we don’t have to expect that the planned increase in capital ratios will hamper the real economy, in particular given generous transition periods.” Weber, who is also president of Germany’s Bundesbank, said that while “not everyone will be able to push through their national position,” he is “confident” the proposals will be concluded this weekend.