FACTBOX-Reaction to Basel III bank capital rules

Sept 13 Mon Sep 13, 2010 9:02am EDT

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Sept 13 (Reuters) - Banks will have to more than triple to 7 percent the amount of top quality capital they hold to withstand future shocks, global regulators and central bankers ruled on Sunday.

The agreement, known as "Basel III", will force banks to set aside far more capital to withstand market shocks in future in a bid to lessen the need for bailouts by governments seen during the financial crisis.

Following are some reactions and official statements issued after the agreement:

NOUT WELLINK, HEAD OF BASEL COMMITTEE ON BANKING SUPERVISION

"I hesitate a bit to mention numbers because it concerns a very long phase-in period that will take about eight years and numbers will change over time. It will be hundreds of billions (of euros).

"Partly they will have to retain profit for years which they cannot use to pay shareholders or bonuses. For another part, this will vary from bank to bank, they will have to get it from the capital market."

Asked whether the new Basel rules could hurt banks or the economy.

"We have looked at this and it was a factor to choose a rather lengthy and complicated phase-in period. We have done it in such a way that the economy will not suffer from it, we think. It is long period, it will be fine-tuned in a step-by-step process. We have very much taken into account that the economy will be weak at the start. "I think it will make a new crisis less likely. The chance of a new crisis is much smaller, we have made calculations on this. But we cannot rule it out completely."

MARIO DRAGHI, CHAIRMAN, FINANCIAL STABILITY BOARD

"The agreements certainly reduced probability of failure for systemically important banks but don't resolve the moral hazard problem as these banks are too big or too interconnected to fail. Work to address these problems is led by the FSB and we will present recommendations in Seoul.

(Systemically important financial institutions) need greater loss absorbing capacity. (They) need enhanced supervision as revision which is broader, more effective, and in a sense intrusive because stakes are higher than normal, small and medium banks."

JEAN-CLAUDE TRICHET, PRESIDENT, EUROPEAN CENTRAL BANK

"We (now) have transition arrangements which will enable banks to meet these standards while supporting the economy on recovery.

"With this decision taken here... we eliminate uncertainty in a large area which is a major contribution in consolidating the global economy.

"It's a work in progress. It is a major decision. We have hard work to do. We have the issue of liquidity ratio and we have to work actively in this matter."

JOSEF ACKERMANN, CEO DEUTSCHE BANK (DBKGn.DE)

"The now presented changes (to Basel III) are challenging but right. We support them with all our means.

"All the numbers (of Basel III) are broadly in line with what we expected. We do not need extra capital (to comply with them). We will most likely comply with Basel III by the end of 2013."

MICHEL BARNIER, EUROPEAN UNION COMMISSIONER IN CHARGE OF FINANCIAL REFORM

"This agreement has struck the right balance. We are learning the lessons of the crisis in requiring better capitalisation for our banks and larger liquidity cushions."

"The agreement also takes account of the essential role of banks in the European and global economic recovery."

"I think that the transition period to reach these ambitious objectives is the right one: it is sufficiently long to allow for gradual improvements and hence not put economic growth in danger."

"Once this agreement is confirmed by the G20 in November, the Commission will propose, in the first quarter of 2011, the necessary legislative texts to transpose into European law the principles agreed yesterday evening."

KARL-HEINZ BOOS, EXECUTIVE MANAGING DIRECTOR OF THE ASSOCIATION OF GERMAN PUBLIC SECTOR BANKS (VOEB)

"The agreement is a regulatory shot in the dark as no studies on the impact are envisaged. We see the danger that the ability of German banks to supply loans to the economy will be significantly curtailed.

"Small and mid-sized companies that have no access to capital markets will suffer in particular. It seems the timetable here was more important than quality (making this) a compromise package with risks and side effects."

ADAIR TURNER, CHAIRMAN OF UK FINANCIAL SERVICES AUTHORITY

"I think it's a very, very balanced package which is designed to achieve future resilience without in any way restricting the ability of the banking system to support the real economy."

GERHARD HOFFMANN, CENTRAL ORGANIZATION OF THE GERMAN COOPERATIVE BANKS: "Business models with little risks are burdened in the same way as business models with high risks. Additionally, not all problems can be solved with more equity."

FRENCH ECONOMY MINISTER CHRISTINE LAGARDE

"The agreement passed yesterday marks a significant improvement.

"We wanted an improvement in the quality and quantity of capital over a period of time that would allow growth and the financing of growth. This is excellent progress."

U.S. TREASURY SECRETARY TIMOTHY GEITHNER

"We welcome this next step on the way to strong global financial reforms and look forward to reviewing the details of these proposed reforms to global capital requirements.

"We remain committed to reaching agreement by the time of the G20 meeting in Seoul on a strong set of reforms that will reduce the costs of future financial crises, provide certainty to the markets and secure a level playing field for U.S. financial institutions."

BOARD OF GOVERNORS, U.S. FEDERAL RESERVE

"The agreement represents a significant step forward in reducing the incidence and severity of future financial crises, providing for a more stable banking system that is less prone to excessive risk-taking, and better able to absorb losses while continuing to perform its essential function of providing credit to creditworthy households and businesses."

XIAO GANG, CHAIRMAN, BANK OF CHINA

"It will take a long time to implement Basel III rules. It is still early to examine the impact of the new rules on specific banks. It's also difficult to say when China will implement this rule because we haven't exercised Basel II yet."

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