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Banks will have to forego earnings to protect against
hard times and face limits on debt accumulation,
according to new rules proposed by international
authorities in the world's major central banks and
regulators.
The new framework for bank supervision and risk
management comes after financial officials, called The
Group of 20, on Saturday to ensure that financial
institutions better protect themselves against market
conditions and economic crises.
New Standards
The central bankers said in a statement on Sunday that
the new measures could substantially reduce the
likelihood and severity of financial and economic
tensions, with concrete proposals that will be completed
later this year.
“The agreements reached today between 27 major countries
worldwide are essential because they set new standards
for banking regulations and supervision globally”,
according to European Central Bank president,
Jean-Claude Trichet, who heads the supervisory body.
The measures include new rules on capital requirements
for banks, introducing a range of leverage, a minimum
global liquidity standard of funds, and a scheme of
countercyclical capital buffers above the minimum
requirements.
The regulators are also considering imposing a surcharge
to mitigate systemic risks, central bankers said after
the meeting of Bank for International Settlements in
Basel, Switzerland.
Counter cyclical fluctuations
Under the proposed new rules, banks will have to
increase the quality of its stronger capital cushions,
mostly common stock and retained earnings. They will
also trace a program of countercyclical capital buffers
below the required minimum, seeking to offset
fluctuations in the economic cycle.
A radii of leverages that limit the amount of debt that
banks are allowed accumulate in proportion to their
capital will be introduced and approved internationally,
adjusting for differences in accounting, the statement
reads.
The U.S. has already introduced radii leverages, but
European regulators have been more sceptical.
Central bankers and regulators that make up the Basel
Committee also agreed upon principles for the period of
transition of the new rules.
Swisslatin / agencies
(7.09.2009) |
