UPDATE 2-German banks may need 105 bln euros under Basel III

Mon Sep 6, 2010 10:30am EDT

Related Topics

* Big banks face 105 bln euros capital need - BdB bank lobby

* Tier-1 ratio expected at 6 pct, buffers of 4 pct expected

* BdB pleads for long transition; sees no German veto

(Adds detail, background)

By Alexander Huebner and Jonathan Gould

FRANKFURT, Sept 6 (Reuters) - Germany's 10 biggest banks may need 105 billion euros ($141 billion) of additional capital under a revamp of banking rules designed to prevent future financial crises, the country's banking association said.

International banking regulators known as the Basel Committee will likely require banks to have a Tier 1 capital ratio of 6 percent, up from 4 percent, said the BdB banking association, whose members include lenders such as Commerzbank (CBKG.DE) and Deutsche Bank (DBKGn.DE).

Regulators are bumping up the amount of capital banks need to hold in an effort to ensure lenders have an array of loss-absorbing backstops that can be used in case of a downturn.

Buffers for capital conservation of an additional 2 percent and a countercyclical capital buffer of 2 percent more are also likely to be applied, the BdB said on Monday.

The Tier 1 ratio and each of the buffers probably would be composed of 80 percent of top quality or "core Tier 1" capital, which consists of equity capital and retained earnings, BdB said.

Many leading banks already hold Tier 1 capital of 10 percent or more.

But many lenders also face big hurdles getting ready for the new rules and needed time to adjust, particularly as politicians were also weighing separate measures such as a bank levy, a financial transaction tax and changes to the law on corporate restructuring, BdB Deputy General Manager Hans-Joachim Massenberg told journalists. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a related Q&A please double click on [ID:nLDE6850Q0] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

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"We have a lot of banks that have no access to capital markets and who need time if they have to build their capital base only through retained profit," Massenberg said.

The discussion among regulators was centring on a transition period of six to eight years to allow banks to adapt to the new rules, which was the "absolute minimum", the BdB said.

The BdB's members would prefer to have eight to 10 years to fulfil the quantitative capital requirements and more than 10 years to transform the quality of their capital structure to meet tougher Basel Committee standards.

Germany was the only member of the Basel Committee of banking supervisors and central bankers that refused to endorse a draft of the rules in July, saying it did not take into account the special needs of its state-backed banking sector. [ID:nLDE66Q1YT]

But the country with Europe's biggest economy was not expected to stand in the way of a final accord on the rules, which banking regulators around the world are set to adopt.

"We don't expect there will be a German veto," said BdB regulatory specialist Dirk Jaeger.

Banking regulators and central bank officials from across the world meet on Tuesday to finalise the Basel III package, which could wrap up in time for a G20 meeting in November and come into force at the end of 2012. [ID:nSGE682068] (Editing by Michael Shields and David Holmes) ($1=.7453 Euro)

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