Top central bankers have agreed on a set of new bank regulations, called Basel III, which are aimed at preventing a repeat of the recent financial crisis.
'The agreements reached today are a fundamental strengthening of the global capital standards,' said European Central Bank chief Jean-Claude Trichet, who chairs the group of regulators, at the meeting in northern Switzerland.
Under the new rules to be phased in from 2013, banks would be required to hold substantially more reserves by January 1 2015, with the so-called core Tier 1 capital raised to 4.5% from 2% at the moment.
In addition, banks would be required by January 1 2019 to set aside an additional buffer of 2.5% to 'withstand future periods of stress', bringing the total reserves required to 7%.
Regulators said that the purpose of the additional buffer is to 'ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress'.
They added that this would go towards stopping banks from issuing 'discretionary bonuses and high dividends, even in the face of deteriorating capital positions'.
Certain assets would also no longer be considered as appropriate reserves, and would have to be replaced by better quality assets beginning in 2013.
The set of new regulations will be submitted for ratification at a meeting of Group of 20 major developed and developing nations in South Korea in November.
