Banks will have to triple to 7% the amount of top quality capital they must hold to withstand future shocks, global regulators and central bankers agreed today.
Banks will have to hold a core Tier 1 ratio of top quality capital - retained earnings or shares - of 4.5%, compared with 2% at present, a statement from the group chaired by European Central Bank president Jean-Claude Trichet said.
Total Tier 1 was set at 6%, compared with 4% at present.
Banks will also have to build a new, separate 2.5% ‘capital conservation’ buffer on top of their Tier 1 holdings, the statement said. It will be formed of common equity.
A separate ‘countercyclical buffer’ of 0-2.5% will also be required when excessive credit conditions emerge.
Implementation of the new Tier 1 rules will start in January 2013 and be fully implemented by January 2015, with the capital conservation buffer phased in from January 2016 to January 2019.
US bank regulators welcomed the global bank safety accord, saying it would protect against future financial crises like the one that rocked global markets from 2007 to 2009.
‘The agreement represents a significant step forward in reducing the incidence and severity of future financial crises,’ the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp said in a statement.
