Basel sticks to new bank capital deadlines

LONDON Thu Apr 29, 2010 1:30pm EDT

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LONDON (Reuters) - A global committee of central bankers and supervisors is not looking to delay tough new capital requirements on bank trading books from next January despite industry concern, a committee official said on Thursday.

The Basel Committee on Banking Supervision agreed the new rules last year to plug a loophole highlighted by the financial crisis, whereby assets were moved from the bank book to the trading book to avoid heavy capital charges.

"The committee is not considering a delay. We have not in any way discussed postponing that," Basel Committee Secretary General Stefan Walter told the Reuters Global Financial Regulation Summit.

The Association for Financial Markets in Europe told the summit this week that January was too soon.

The committee is also "strongly committed" to implementing on time a wider package of reforms known as Basel III, which toughens up capital requirements and introduces new minimum global liquidity standards for the first time, Walter said.

The G20 group of countries wants Basel III introduced by the end of 2012, if economic recovery is assured.

Policymakers seek a safer, well-capitalized banking system so that taxpayers will not have to bailout the sector again.

Banks warn that Basel III will create so much demand for capital it would curb credit and undermine economic recovery.

Walter said responses from banks showed agreement with the general Basel III objectives.

"A lot of the comments are about the details and overall calibration of the proposals and so we will be looking at those very carefully over the coming months," he said.

"The commitment to the Basel Committee reform process, which has been fully articulated in Pittsburgh by the G20, is as strong as ever, including finishing this within agreed timelines," Walter said.

"We will be looking at the comments and obviously we will make sure that the design and calibration is appropriate in relation to the objectives we want to achieve," Walter said.

ATTENTION TO LIQUIDITY

There may be some changes to the package.

"We will be taking another close look at the treatment of the credit valuation adjustment for derivatives. We did receive more comments there than I expected," Walter said.

"The one that is a little bit harder is the liquidity side because we don't have as much history in setting liquidity standards," Walter added.

"There is broad support for the two liquidity ratios in our proposals so the main issues relate to the appropriate calibration of the standards and the right definition of liquid assets. But liquidity is an area where we will be devoting significant attention to get it right."

The Basel Committee next meets in July.

"Our plan is then to have a fully delivered, calibrated set of proposals in time for the G20 in November and to be then finalized by the end of this year," Walter said.

The overarching aim is to raise standards to support a more sustainable banking sector in the long run.

"We will transition to the new standards in a way that does not impede near-term growth. However, there needs to be a substantial increase in minimum capital requirements over time and we need a minimum global liquidity standard," Walter said.

"When competitive pressures reassert themselves, and this is already happening, we cannot revert back to a banking system that had so little margin for error and was so vulnerable to shocks as was the case before the crisis," Walter added.

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