* Big banks face stricter curb on exposures
* Large exposures to be reported to regulators
* New rules due to start in January 2019
By Huw Jones
LONDON, March 26 Global regulators have proposed
tougher rules from 2019 to stop big banks from building a level
of risk on their books that would make them vulnerable if a
major customer goes bust.
In an attempt to gain transparency on bank assets and
facilitate speedy action from regulators in the event of a
crisis, the global Basel Committee on Banking Supervision is
proposing much tougher rules on banks' exposure to other banks.
The aim is also to reassure markets that when a bank is in
trouble, other banks' exposure to it would be relatively limited
to avoid the type of contagion seen during the 2008/09 financial
Big losses at some banks on asset-backed securities in 2008
prompted investors to withdraw funds from a wide range of
lenders, exacerbating the market turmoil.
Leaders of the world's top 20 economies (G20) called on the
committee at the height of the crisis in 2009 to reinforce
banking rules to make markets safer.
Basel is now proposing to impose a stricter exposure limit
on big banks and a requirement for more detailed reporting on
"This is to ensure that the large-exposures standard is
effective and consistent for internationally active banks," a
committee statement said.
"On this basis, breaches of the limit should be exceptional
events, should be communicated immediately to the supervisor and
should, normally, be rapidly rectified."
Basel said that the very biggest banks would only be allowed
to conduct business with another bank of similar size up to the
equivalent of 10-15 percent of its core capital, well below the
25 percent limit recommended at present.
Financial experts say that the new rules could have a
negative impact for global banking groups that do business with
their large subsidiaries across the world.
"The knock-on effect is another dampener on the flow of
capital around the system. It's a bit more grit in the machine,"
said Richard Barfield, of accountant and consultancy PwC.
"What is coming into focus is the whole balance between the
supervisory appetite for risk and the need to have a financial
system that can support international business activity and
The new rules would come into force on Jan. 1, 2019, when
banks will have to comply fully with Basel's other rules on
higher capital requirements.
Basel said that supervisors should consider asking banks to
begin reporting large exposures before 2019 to identify whether
they are having any difficulties in moving to the new regime.