- Title: UNITED KINGDOM: Basel eases bank capital raising fears as shares climb
- Date: 14th September 2010
- Summary: LONDON, ENGLAND, UNITED KINGDOM (SEPTEMBER 13, 2010) (REUTERS) (SOUNDBITE) (English) ROGER NIGHTINGALE, GLOBAL STRATEGIST AT POINTON YORK, SAYING; "There's a pre-disposition amongst regulators to believe that the problem we saw with the bank failures earlier, a couple of years or so ago, was because of an insufficiency of capital. Myself, I don't think that was true. I think the banks would have failed in any event; they were doing things they shouldn't have done, their chief executives weren't being sensible, and it really didn't matter terribly much how much capital they had, they would still have failed."
- Embargoed: 29th September 2010 13:00
- Location: United Kingdom
- Country: United Kingdom
- Topics: Finance
- Reuters ID: LVAE1AEI3KRZCP2N5DZ9OTRTK2NY
- Story Text: New bank capital rules agreed by global regulators brought relief to the world's banks on Monday (September 13), with traders in London saying they had expected the package of measures to be more stringent.
The new requirements, known as Basel III, will demand banks hold top-quality capital totalling 7 percent of their risk-bearing assets, but a long lead-in time eased fears that lenders will have to rush to raise capital.
Europe is the most likely region for banks to need to raise funds, particularly in Germany, Spain and other weak spots, though to a less extent in the UK.
David Buik, senior partner at BGC Partners in London, said the Basel III package had not come as a surprise.
"Basically, I think it's been very well chronicled. We'd been expecting - in fact, we asked for - 8-to-9 percent of Tier 1 (core) capital. Most of the UK banks, as you know, are around 10-to-11. Obviously Europe has not felt as comfortable, particularly Germany, and have asked for an extension beyond five years to get their house in order to eight years. And I think everyone will benefit from that as a result of it," Buik told Reuters.
The new capital ratio represents a substantial increase from the current requirement of 2 percent, but is significantly lower than what banks had feared earlier this year and comes with a phase-in period extending in part to January 2019.
European bank shares rose 2 percent and the euro jumped 1 percent versus the dollar as the prospect of a rush to raise cash receded.
Banks will not be required to meet the minimum core tier one capital requirement, which consists of shares and retained earnings worth at least 4.5 percent of assets, until 2015. An additional 2.5 percent "capital conservation buffer" will not need to be in place until 2019.
"In a way, I think we're quite surprised that it's not as draconian as we thought it might be. And this looks like a pretty soft effort by the Basel III commission. And also there's been enormous input from the central banks, and the IMF and others, so this ought to be ratified by G20. And I think it'll probably go through very simply because it's a lot less worse than I thought it might be," said Buik.
The Basel III agreement was reached in Switzerland by central bank governors and top supervisors from 27 countries, after a year of horse-trading and lobbying that involved banks and governments seeking to protect their national interests.
Along with the capital standards, Basel III includes a range of reforms agreed earlier this year to reduce risk-taking by banks, including rules on how liquid banks' assets must be and how banks must treat tax assets on their books. Some changes were watered down in July after strenuous lobbying by banks.
Leaders of the Group of 20 rich and big emerging economies blamed the global credit crisis partly on risky trading by banks and demanded tougher bank capital rules. Some industry experts, however, caution against overstating the role the Basel III agreement will play in ensuring future financial stability.
"There's a pre-disposition amongst regulators to believe that the problem we saw with the bank failures earlier, a couple of years or so ago, was because of an insufficiency of capital. Myself, I don't think that was true," said Roger Nightingale, global strategist at Pointon York.
"I think the banks would have failed in any event; they were doing things they shouldn't have done, their chief executives weren't being sensible, and it really didn't matter terribly much how much capital they had, they would still have failed."
G20 countries are set to endorse Sunday's deal when they meet in Seoul in November.
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