Factbox: Reaction to Basel III bank capital rules

LONDON Mon Sep 13, 2010 9:06am EDT

Related Topics

LONDON (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

"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 capitalization 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."

ZHU MIN, IMF SPECIAL ADVISER AND FORMER DEPUTY GOVERNOR OF CHINESE CENTRAL BANK

"The concern is that if everybody in the world applies different levels at the same time, it may cause international arbitrage in the regulatory framework."

PHILIPP HILDEBRAND, CHAIRMAN OF THE SWISS NATIONAL BANK

"The reform package will ensure that, going forward, banks will hold much larger buffers of higher quality capital and liquidity. This will make the global financial system more resilient to future shocks. Gradual implementation of the new standards will support the economic recovery.

"While the reform package is far-reaching, it does not yet comprehensively address the TBTF ("too big to fail") problem. Further efforts will be required in that area at the international and at the national level."

MOHAMED EL-ERIAN, CO-CHIEF INVESTMENT OFFICER, PIMCO

"The phasing-in period for the new capital requirements is surprisingly long, which will add to the skepticism about the robustness of the bank capital enhancement efforts."

SIMON HILLS, DIRECTOR, BRITISH BANKERS ASSOCIATION

"I think it's broadly in line with what we expected.

"The question is how much monitoring there will be while the changes are being introduced. It's important there is ongoing monitoring and reassessment to make sure it's doing what we expect it to do and not have any unintended consequences we are nervous about.

"I think the banking sector can live with this deal. The capital conservation buffer is a bit lower than we had feared."

ARTHUR YUEN, VICE CHIEF EXECUTIVE OF HONG KONG MONETARY AUTHORITY

"As at end-June, capital adequacy ratio of banks in HK is 15.7%; tier one capital ratio at 12.1%; common equity tier one ratio at 10.3-10.4%. "Even under the new requirements, we believe there will be no major impact on local banks ... our ratios (for local banks) are substantially higher than the Basel III requirements."

MULIAMAN D. HADAD, DEPUTY GOVERNOR INDONESIAN CENTRAL BANK

"The capital adequacy ratio of our banking sector is quite strong. The figures have included all risks including operational risks, which means they are quite realistic to describe the capital strength. What has been decided by Basel has been anticipated by us, and there is no problem."

YURI SOLOVYOV, PRESIDENT AND CEO OF VTB CAPITAL

"If the framework for the introduction of the measures is 8 years, this is very commendable and there is no drastic repercussions for the market or for the state of the banking sector.

"Secondly, I do believe that the ratios which are supposed to be announced are relatively mild and I would definitely support the introduction of those measures.

"I would like to see more. I would like to see more transparency of the derivatives world, I think this is where the potential biggest problem is going forward

"As a group VTB is very well capitalized. We have an overall adequacy ratio of 22 percent and Tier 1 capital of 16 percent plus."

TIM RYAN, CEO SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION

"The Committee's proposals appear to move in the same direction as the requirements enacted into law by the Dodd-Frank Act, while providing a reasonable time frame for implementation.

"Yet we believe a number of issues must be resolved if these proposals are to support stability without constraining the supply of capital which is essential to support economic growth and job creation."

ROB McIVOR, DIRECTOR OF COMMUNICATIONS, ASSOCIATION OF FINANCIAL MARKETS IN EUROPE

"It appears that the Committee has recognized the importance of ensuring that, in the transition to the new regime, recapitalization timing does not undermine the banks' ability to meet their customers' credit requirements.

"However, even now, there remain significant concerns, particularly the proposal to designate some firms as systemically important and therefore burdened with additional requirements.

"We believe this would be fraught with difficulty -- as, in other contexts, the Basel Committee has recognized -- and unnecessary.

"Disproportionate requirements would be damaging for both the financial sector and the wider economy. Continuing uncertainty over what is required could have a negative impact on the banks' ability to plan ahead, which in turn will act as a brake on recovery in European economies."

RICHARD BARFIELD, DIRECTOR, PRICEWATERHOUSECOOPERS

"One of the features of the phasing in they are proposing is that in the later stages you will get an accelerated effect with the deductions and increase in ratios.

"I expect that what will happen is that the larger banks will move toward these figures ahead of the timetable.

"There is also a risk in the approaches. In terms of the countercyclical buffer, you have a bald number to protect against excess credit, but bubbles tend to affect individual asset classes at different points in time so it's a blunt instrument. To manage risk you have to be more targeted."

DANIEL ZUBERBUEHLER, VICE CHAIRMAN, BOARD OF DIRECTORS, SWISS REGULATOR FINMA, ALSO A MEMBER OF BASEL COMMITTEE

"This will enable them (banks) to withstand larger shocks without relying on government support. As a result, the global financial system will be more resilient to shocks.

"In light of the current crisis that highlighted the fragility of the banking sector such a reform was indispensable. To make sure that their implementation supports economic recovery, capital and liquidity requirements will be introduced gradually over the next decade.

"The FINMA and SNB strongly support these efforts."

GUY DE BLONAY, WHO CO-RUNS FUND MANAGER JUPITER'S 1.4 BILLION POUND FINANCIAL OPPORTUNITIES FUND.

"The message is that authorities have agreed and realized they need to let the banks recover first and start to lend to participate in the recovery.

"The authorities ... understand that financial institutions need to be comfortable so that they can continue to lend, rather than be afraid about their capital in the short term.

"If management can be confident on the capital position, it will allow them to be a bit more flexible on growth opportunities."

CHRIS WHEELER, ANALYST, MEDIOBANCA, LONDON

"It is clear that as a result of concerns about the anemic economic environment, Basel is trying to balance the need for tougher regulation with supporting the banks' inevitable role in the recovery. Hence the long implementation time frame."

SHINICHI INA, BANKING ANALYST AT CREDIT SUISSE, TOKYO

"Based on the expected level of new capital requirement, I had already thought Japan's big banks would not need to raise fresh capital but I had thought there would be risks of some having to curb their dividend payout. But now as I look at the rules, I think there are improved chances of these banks able to keep their current dividend payout ratio." (Reporting by Steve Slater, Huw Jones, Mark Felsenthal, Jennifer Ablan, Catherine Bosley, Sakari Suoninen and Natsuko Waki; Compiled by Hugh Lawson and Alex Richardson)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.