Regulators speed up big bank capital preparations

Wed Jul 3, 2013 7:13am EDT

* Basel to finalise new rules for top global banks by Nov

* New deadline year earlier than originally planned

* Rules to define global systemically important bank (GSIB

* GSIBs have to hold capital greater than 7 pct minimum

By Huw Jones

LONDON, July 3 (Reuters) - Global banking supervisors are speeding up work on tougher capital rules for the world's top lenders, in a bid to dispel some of the regulatory uncertainty over a sector whose reckless behaviour caused the credit crunch.

The Basel Committee, made up of banking supervisors from nearly 30 countries, said on Wednesday it will finalise its new rules for top global banks by November, a year earlier than originally planned, so lenders have more time to prepare.

The rules being applied are important partly because they will help define a top section of so-called global systemically important bank (GSIBs) and how much extra capital they need to hold. Phasing-in of the rules is due to start in 2016, with full compliance in 2019.

Leaders of the world's top economies (G20) approved the tougher regime for nearly 30 of the world's biggest banks in November 2011, after lenders had to be rescued by taxpayers in the financial crisis.

The rules require top banks to hold a level of capital even greater than the 7 percent minimum of their risk-weighted assets which all banks globally must hold under the Basel III accord.

Thus banks such as Goldman Sachs, HSBC and Deutsche Bank must hold a further 1 to 2.5 percent of capital above the Basel minimum, in recognition of the mayhem that could result in world markets if they fail.

Yet the eventual impact remains to be seen of the revised methodology to determine who is a GSIB - and how much extra capital they must hold.

Revisions to the methodology, issued by the Basel Committee on Wednesday, consists of indicators looking at a bank's assets and how interconnected it is with other banks.

MORE PRECISION

Basel has sought to inject more precision in how a bank's assets are added up to gauge their level of riskiness.

Some top-quality assets that can be sold easily in stormy markets must now be excluded from calculations to put greater focus on the volume of assets "that may suffer a fire sale discount if sold during a period of severe market stress".

Basel is now gathering more data from banks to complete its work by November so banks can work out whether they are a GSIB and if so, the size of their capital surcharge.

"These elements will enable banks to calculate their scores and higher loss-absorbency requirements using end-2012 data, prior to the requirements coming into effect based on end-2013 data," the Basel Committee said in a statement.

The regulators are due to publish an updated list of GSIBs in September at the next G20 summit in Russia. Some banks on the current list are likely to drop out after shrinking their asset base, while others may end up being on the list.

Investor and supervisory pressure has already forced the big banks to meet or exceed their capital targets, years ahead of the formal timetable.

On Tuesday the Federal Reserve approved rules putting the Basel III and GSIB capital regime into U.S. law, mirroring a move already taken by the European Union.

Credit rating agency Standard & Poor's (S&P) said late on Tuesday that higher capital requirements and a narrowing of the scope of business activity will leave "fewer or less-attractive business opportunities for regulated and systemically important banks".

It cut its ratings on three big banks - Deutsche Bank, Barclays and Credit Suisse - citing the pressure of new rules on income.

G20 regulators are also due to publish shortly a list of the world's biggest insurance companies who, like the biggest banks, will have to hold extra capital and faces closer scrutiny.