Basel 3 rules approved, banks still have years to comply
The Basel Committee on Banking Supervision agreed this week on details in the Basel 3 rules that include global regulatory and capital standards for major banks. The committee's oversight body of central bank governors and heads of supervision reached an agreement on the framework of the standards in July and September. The G20 leaders at the November summit in Seoul, South Korea, then endorsed this structure. The committee said it would publish the final Basel 3 text by the end of the year. But banks have years to comply with key elements in the rules. For instance, a bank must hold a minimum Tier 1 capital ratio of 4.5% by 2013 and 6% by 2015. A bank's minimum capital conservation buffer – a fund the bank can draw on in times of economic stress – must reach 0.625% by 2016 and 2.5% by Jan. 1, 2019. According to Barclays Capital, the top 35 U.S. banks will be short of between $100 billion and $150 billion in equity capital when the regulations are imposed, and a financial sector trade body in Europe said new rules would not stop the current financial crisis. While BarCap said the shortcomings are "manageable," Standard & Poor's said last week that the adoption of the Basel 3 requirements would raise the cost of securitization and leave the banks looking for ways to reduce their existing exposures. The Basel Committee will complete a study of the size of additional bank losses by the middle of 2011. The G20 is expected to formally adopt the set of supervision by the end of next year. Write to Jon Prior.