Tags: US | Bank | Capital | Requirements

Bankers Agree on Plan to Increase Capital Buffers

Monday, 27 Jun 2011 09:20 AM

 

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The banks that are most important to global financial stability will be required to hold extra capital on their balance sheets to protect them — and the global economy — from financial crises under new rules proposed Saturday.

Global central bank heads have proposed rules that would require the world's biggest banks to hold an extra 1 percent to 2.5 percent of capital on their balance sheets, depending on their size. The goal of requiring larger cash buffers is to prevent another shock to the global financial system like the one that occurred in 2008 when Lehman Brothers collapsed.

The rules were proposed by the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision. The committee is part of the Bank for International Settlements, an umbrella organization for the world's central banks.

The cash buffers that giant global banks would have to hold would be in addition to an existing requirement that all banks hold 7 percent of their assets in reserve.

The Group of Governors said in a statement Saturday that the proposed requirements would discourage banks from becoming so big that their failure could destabilize the global financial system.

"This will contribute to enhancing the resiliency of the banking system and help mitigate the wider spill-over risks of global systemically important banks," Jean-Claude Trichet, President of the European Central Bank and chairman of the Group of Governors, said in a statement.

Banks would have three years, from the beginning of 2016 until the end of 2018, to meet the new requirements.

The Group of Governors also agreed on a method for determining banks' importance to the banking system, though it did not disclose details. The group said its package of recommendations would be announced near the end of July.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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