Sunday, September 12, 2010New global rules set to put pressure on banks
IF ALL goes well, the world will be a slightly safer place after top central bankers and bank regulators emerge today from meetings in Basel, Switzerland.
By agreeing on new rules aimed at preventing financial crises, they will remove a source of uncertainty that has weighed on markets just as concerns about European sovereign debt rise again.
But the rules will also put further pressure on weaker banks, many of which will have to raise more capital.
This may represent another step in the triage of the banking world into healthy institutions and sick ones with few options other than to plead for more government aid or go out of business.
Financial authorities from 27 countries, including US Federal Reserve chairman Ben Bernanke and European Central Bank president Jean-Claude Trichet, have been working for months on what new constraints the banking industry should face.
The debate about the Basel III rules has added an extra dose of tension to markets made nervous in recent weeks by the problems of the Anglo Irish Bank in Ireland and new questions about sovereign debt holdings.
In the long run, if the rules work the way they are supposed to, banks will be much more able to absorb violent market shocks and the world will be less susceptible to the kind of financial crisis it has experienced in the past three years.
''The system does not have the capacity for another round of bailouts, nor does the public have the tolerance for it,'' said Nout Wellink, chairman of the Basel Committee on Banking Supervision, which created the proposed rules. But the new rules probably mean banking will become a less profitable business.
Mr Wellink's panel is overseen by the Group of Central Bank Governors and Heads of Supervision, under the chairmanship of Mr Trichet.
Mr Trichet's group is expected to forge a pact on the rules late today, though talks could continue through tomorrow.
Its recommendations will go to the Group of 20 nations in November, and take effect only after individual nations write them into law.
The central issue before the regulators in Basel is how much low-risk capital banks should be required to keep in reserve, and what qualifies as low-risk capital.
Under current rules, banks might hold so-called core Tier 1 capital - the most-bulletproof category of reserves - equal to as little as 2 per cent of their assets.
Analysts at Morgan Stanley expect the regulators to raise the required amount to about 8 per cent.
http://www.einnews.com/switzerland/
