Basel panel to tighten bank rules

ZURICH: The Basel Committee, a forum that coordinates banking supervision among central banks, announced plans on Wednesday to strengthen capital buffers and limit leverage to address the lessons of the financial crisis.

The committee, headed by Dutch Central Bank Governor Nout Wellink, said in a statement it plans to issue concrete proposals for public consultation in early 2009.

���Ultimately, our goal is to help ensure that the banking sector serves its traditional role as a shock absorber to the financial system, rather than an amplifier of risk between the financial sector and the real economy,��� Wellink said. Wellink said the committee���s proposals would be based on recommendations made in April by the Financial Stability Forum, an initiative of G7 finance ministers and central bank governors.

Among the ideas the Basel Committee is already considering are ways to limit risk concentration at banks and build extra shock absorbers into the system that can be drawn upon during periods of stress to stop banks exacerbating a downturn.

The committee also wants to enhance the quality of Tier I capital, a key measure of capital held against risky assets.

Banks around the world have been criticised for taking on too many risky assets like mortgages and complex debts and for not holding enough capital to cover those risks.

They will soon be required to adhere to new capital requirements known as Basel II, a risk-based capital framework that aims to ensure that banks worldwide meet similar requirements for matching reserves to the risks they face. It also said it wants to leverage Basel II to strengthen risk management and governance practices at banks and will push for more globally coordinated supervision.

Other proposals include better supervision of liquidity funding at cross-border banks and improving counter-party credit risk capital, risk management and disclosure at banks.