G20 set to extend phase-in of bank capital rules

BUSAN, South Korea (Reuters) - Tough new global bank capital rules will be phased in over a longer time than originally planned, Canadian Finance Minister Jim Flaherty said on Friday in a sign that intense lobbying by banks is paying off.

The Group of 20 leading emerging and developed economies agreed last year to finalize sweeping new bank capital and liquidity rules this year and to put them into effect by the end of 2012.

Banks have mounted a vocal campaign for a longer phase-in, arguing the new rules will make it hard to continue lending to support the economy and to build up bigger capital buffers in volatile markets.

"Implementation is a variable. Some would like a shorter period, some would like a longer period. I think that can be worked out over time," Flaherty told reporters on the sidelines of a G20 finance ministers' meeting.

"There can be a compromise on that," Flaherty said.

The so-called Basel III rules will force banks to hold more and higher-quality capital so they are less likely to need government bailouts again when the next crisis hits.

Basel is seen as the world's core regulatory response to the financial crisis and a litmus test of G20 resolve to apply lessons from the worst financial crisis since the 1930s.

The world's top banks will unveil a study in Vienna next week showing how the new rules will dent economic growth significantly by forcing them to raise billions of dollars in fresh capital.

Regulators say the economic impact will be far less.

SCOPE TO TALK

British finance minister George Osborne said Busan he wanted Basel III finalized on time this year.

"One of the things I'll be pressing for is that the agreements that were reached last year on capital leverage and liquidity are now concluded. We want to end the uncertainty," Osborne said in remarks distributed by his staff in Busan.

Britain is concerned that some European countries are attempting to weaken rules on the quality of core capital.

Basel III would scrap so-called hybrid capital, which is a mixture of debt and equity used by many Continental European banks, in favor of pure equity or retained earnings.

Britain also sees scope for negotiation over when the rules come into effect, but not over their essential content.

Flaherty stressed the need to continue working on the tougher definition of bank capital so that G20 leaders can see progress when they hold a summit in Canada later this month.

"If we get some more work accomplished here this weekend, then I would expect the leaders in Toronto would be able to express with assurance that we're going in the right direction, that we're on time ... to have the agreement in place by the end of the year," Flaherty said.

The United States has yet to fully implement the existing global bank capital accord, known as Basel II, and its Treasury secretary, Timothy Geithner, said on Wednesday he was open to a longer phase-in for the new capital rules.

"It is perfectly reasonable to use transition periods to make it easier for countries to adjust to what we believe should be substantially a more demanding, more ambitious set of constraints on leverage," Geithner said.

"That's a responsible policy and I'm perfectly comfortable negotiating using a reasonable transition period to help people more comfortable they can live with those new standards," Geithner added.

Separately, tougher bank trading book capital rules were due to take effect next January, but the European Union and United States announced last month that they were negotiating a later, coordinated implementation date.