NEW YORK (
) -- The Basel Committee on Bank Supervision announced its adoption of new higher international capital standards for the banking industry on Sunday.
The agreements reached today are a fundamental strengthening of global capital standards," said Jean-Claude Trichet, the president of the European Central Bank and Chairman of the Group of Governors and Heads of Supervision, which oversees the Basel Committee, in a
Trichet continued: "
Their contribution to long term financial stability and growth will be substantial. The transition arrangements will enable banks to meet the new standards while supporting the economic recovery."
, the new rules set a total common equity requirement of 7%, reflecting the boost of the minimum common equity standard to 4.5% from the current 2% level and a requirement that banks hold a "capital conservation buffer" of 2.5%, whose purpose would be to help banks "withstand future periods of stress."
The new capital standard is expected to phased in by the beginning of 2015, and countries can start taking steps to implement the new requirements at the beginning of 2013. The Tier 1 capital requirement will go up to 6% from the current 4% level in the same timeframe. There are also stricter requirements for what can be included as Tier 1 Capital, the Basel Committee said.
There was also an indication that the standards could still be set higher for the biggest of the banks -- news that could impact "too big to fail" names like
Bank of America
J.P. Morgan Chase
"Systemically important banks should have loss absorbing capacity beyond the standards announced today and work continues on this issue," the Basel Committee said in its statement.
U.S. bank regulators quickly announced their support of the deal. The
Office of the Comptroller of the Currency
Federal Deposit Insurance Corp.
on the news, saying the agreement "represents a significant strengthening in prudential standards for large and internationally active banks."
In their statement, the U.S. officials stressed that the two-year implementation window should be manageable for banks and minimize any expected impact of meeting the new requirement on the amount of credit available to consumers.
"This 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," the U.S. officials said.
The Basel Committee said that, based on its own research, as of the end of 2009, large banks will need a "significant amount of additional capital to meet these new requirements."
Written by Michael Baron in New York.
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