Basel Committee agrees on measures to control top banks

28th September 2011, Comments 1 comment

The Basel Committee on Banking Supervision (BCBS) said on Wednesday it had broadly agreed to recommendations made by central bank governors in July on how to reduce the "moral hazard" of leading banks whose failure would bring chaos to world finance.

The measures relating to so-called global systematically important banks were designed to strengthen their resilience and included raising their loss absorbency requirements.

The BCBS said it "agreed to retain the proposed calibration for the additional loss absorbency requirement" which will range from 1.0 percent to 2.5 percent top tier 1 common equity.

An additional 1.0 percent surcharge could be applied to certain banks "as a means to discourage banks from becoming even more systemically important."

It however said it would propose "some changes to certain indicators to improve" the identification of systemically important banks, which will be presented to G20 leaders at their next meeting in November.

The proposed new rules will run in addition to the Basel III international regulations aimed at shoring up banks against future crises.

They are to be introduced progressively over three years from January 1, 2016.

The financial crisis triggered by the collapse of US bank Lehman Brothers in 2008 forced many countries to rescue their commercial banks to prevent the biggest ones from failing and bringing down whole economies.

Regulators moved to toughen up capital requirements with the Basel III rules, although some banks have protested that they would be costly and harm the economy.

Basel III requires banks are to raise their high-quality core common equity to 7.0 percent of assets from the current 2.0 percent, but some countries including Switzerland have imposed much stricter controls.

© 2011 AFP

1 Comment To This Article

  • Per Kurowski posted:

    on 29th September 2011, 15:05:07 - Reply

    How sad, it seems like the bank regulators have finally decided to sell “Too-big-to-fail” franchises to Systemically Important Financial Institutions (SIFIs/G-SIFIs), for a mere 2.5 percent in additional capital.

    Not only will 2.5 percent of additional bank capital end up being almost meaningless in the case of a systemic explosion or implosion of these huge banks, but it is also probable that precisely those Too-big-to-fail banks, that we least should want to be too big to fail, will be those most likely to exploit the franchise for all it is worth, in order to compensate the additional equity required, in the ways we would least like to see these franchises exploited.

    Of course regulators will argue these franchises will be the subject of special supervision. Who are they fooling? Is it not hard enough for them to supervise these behemoths without labeling them as the most likely candidates for special support?

    Here´s a video that explains a small part of the craziness of our bank regulations, in an apolitical red and blue!