Sept 6 (Reuters) - Central banks and regulators of the
world's leading economies agreed on a set of new banking rules
on Sunday aimed at preventing future financial crisis.
The Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, said concrete proposals would be made by year-end and the calibration should be done by end-2010.
Following are the key measures planned:
CAPITAL REQUIREMENTS:
The regulators aim to raise the quality, consistency and transparency of the Tier 1 capital base. The predominant form of Tier 1 capital must be common shares and retained earnings. Appropriate principles will be developed for non-joint stock companies to ensure they hold comparable levels of high quality Tier 1 capital.
Deductions and prudential filters will be harmonised internationally and generally applied at the level of common equity or its equivalent in the case of non-joint stock companies. All components of the capital base will be fully disclosed.
LEVERAGE RATIO:
Regulators will introduce a leverage ratio -- a way to cap the amount of debt a bank can incur -- as a supplementary measure to the Basel II risk-based framework with a view to migrating to a Pillar 1 treatment based on appropriate review and calibration.
To ensure comparability, the details of the leverage ratio will be harmonised internationally, fully adjusting for differences in accounting.
LIQUIDITY REQUIREMENTS:
The regulators will introduce a minimum global standard for funding liquidity that includes a stressed liquidity coverage ratio requirement, underpinned by a longer-term structural liquidity ratio.
COUNTERCYCLICAL BUFFERS:
The regulators plan to introduce a framework for countercyclical capital buffers above the minimum requirement. The framework will include capital conservation measures such as constraints on capital distributions.
The Basel Committee will review an appropriate set of indicators, such as earnings and credit-based variables, as a way to condition the build up and release of capital buffers. In addition, the Committee will promote more forward-looking provisions based on expected losses.
SYSTEMIC RISK:
The committee plans to issue recommendations to reduce the systemic risk associated with the resolution of cross-border banks.
The Committee will also assess the need for a capital surcharge to mitigate the risk of systemic banks.
TRANSITION PERIOD
Supervisors should require banks to strengthen their capital base through a combination of capital conservation measures, including actions to limit excessive dividend payments, share buybacks and compensation.
Compensation should be aligned with prudent risk-taking and long-term, sustainable performance, building on the Financial Stability Board (FSB) sound compensation principles.
Banks will be required to move expeditiously to raise the level and quality of capital to the new standards, but in a manner that promotes stability of national banking systems and the broader economy.
(Reporting by Sven Egenter; Editing by Marguerita Choy) Keywords: REGULATION BANKS/ (sven-markus.egenter@thomsonreuters.com; +41.58.306.7351; Reuters Messaging: sven-markus.egenter.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, said concrete proposals would be made by year-end and the calibration should be done by end-2010.
Following are the key measures planned:
CAPITAL REQUIREMENTS:
The regulators aim to raise the quality, consistency and transparency of the Tier 1 capital base. The predominant form of Tier 1 capital must be common shares and retained earnings. Appropriate principles will be developed for non-joint stock companies to ensure they hold comparable levels of high quality Tier 1 capital.
Deductions and prudential filters will be harmonised internationally and generally applied at the level of common equity or its equivalent in the case of non-joint stock companies. All components of the capital base will be fully disclosed.
LEVERAGE RATIO:
Regulators will introduce a leverage ratio -- a way to cap the amount of debt a bank can incur -- as a supplementary measure to the Basel II risk-based framework with a view to migrating to a Pillar 1 treatment based on appropriate review and calibration.
To ensure comparability, the details of the leverage ratio will be harmonised internationally, fully adjusting for differences in accounting.
LIQUIDITY REQUIREMENTS:
The regulators will introduce a minimum global standard for funding liquidity that includes a stressed liquidity coverage ratio requirement, underpinned by a longer-term structural liquidity ratio.
COUNTERCYCLICAL BUFFERS:
The regulators plan to introduce a framework for countercyclical capital buffers above the minimum requirement. The framework will include capital conservation measures such as constraints on capital distributions.
The Basel Committee will review an appropriate set of indicators, such as earnings and credit-based variables, as a way to condition the build up and release of capital buffers. In addition, the Committee will promote more forward-looking provisions based on expected losses.
SYSTEMIC RISK:
The committee plans to issue recommendations to reduce the systemic risk associated with the resolution of cross-border banks.
The Committee will also assess the need for a capital surcharge to mitigate the risk of systemic banks.
TRANSITION PERIOD
Supervisors should require banks to strengthen their capital base through a combination of capital conservation measures, including actions to limit excessive dividend payments, share buybacks and compensation.
Compensation should be aligned with prudent risk-taking and long-term, sustainable performance, building on the Financial Stability Board (FSB) sound compensation principles.
Banks will be required to move expeditiously to raise the level and quality of capital to the new standards, but in a manner that promotes stability of national banking systems and the broader economy.
(Reporting by Sven Egenter; Editing by Marguerita Choy) Keywords: REGULATION BANKS/ (sven-markus.egenter@thomsonreuters.com; +41.58.306.7351; Reuters Messaging: sven-markus.egenter.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.