Basel Committee Issues New Capital Standards for Banks
The G-10 Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, agreed to new capital standards for internationally active banking organizations at their Sept. 12 meeting.
The intent of the new agreement is to address lessons learned from the financial crisis. Among the problems identified were a low capital structure, insufficient liquidity, excess leverage, procyclical deleveraging, and systemic interconnections.
The new standards, commonly referred to as Basel III, would significantly strengthen existing capital requirements. The standards would also accomplish the following goals
New capital framework "a significant step forward"
Capital requirements to be phased in over time
The transition period "is designed to give institutions the opportunity to implement the new prudential standards gradually over time, thus alleviating the potential for associated short-term pressures on the cost and availability of credit to households and businesses," according to the statement from U.S. regulators.
The agreement also allows individual nations to implement a countercyclical buffer within a range of 0 percent to 2.5 percent. "This buffer will only be in effect when there is excess credit growth that is resulting in a system wide build up of risk," said a GHOS press release.
The G-20 must approve the new rules before the individual countries enact them.
September 28, 2010