WASHINGTON (Reuters) - Treasury Secretary Timothy Geithner said on Wednesday U.S. banks can meet new higher capital rules through future profits without crimping lending and harming economic recovery.
Echoing recent comments from other top international financial regulators, Geithner said the new Basel III capital rules would not be a crushing burden on banks.
Earlier this month, regulators from the 27 Basel Committee countries agreed to make banks hold more and higher quality capital so they can better withstand economic downturns and financial shocks.
Under the proposal, the new rules would be phased in gradually and would not go into full effect until 2019.
“It is important to note that because we moved so quickly with the bank stress tests in early 2009 that forced banks to raise more common equity, the U.S. financial system is in a very strong position internationally to adapt to the new global rules,” Geithner told the U.S. House of Representatives Financial Services Committee.
“For the most part, banks should be able to meet these new requirements through future earnings, which will help protect the recovery currently under way,” he added.
Geithner argued that the new capital standards will help create a more stable financial system and will help avoid a repeat of the 2007-2009 financial crisis.
Leaders from the Group of 20 developed and emerging nations are set to endorse Basel III when they meet in Seoul in November. It will be left to each country to implement it.
“It is ... essential that the Basel agreements are implemented by national authorities in a way that generates a ‘level playing field’ in our increasingly integrated global financial system,” Geithner said. “We will engage our foreign counterparts to look for ways to ensure that that these agreements are implemented in a transparent and consistent way by supervisors in different countries.”
Germany’s Bundesbank said on Monday that German banks can also meet the rules without reducing lending and sapping the country’s economy of its strength, despite complaints from some of its savings banks, known as landesbanks.
Germany’s top banks may need to raise 105 billion euros ($140.5 billion) in capital under the new rules. Already Deutsche Bank has announced plans to raise 10.2 billion euros and Commerzbank and several landesbanks may be next.
The new rules will force banks to hold top-quality capital totaling 7 percent of their risk-bearing assets, more than triple what they do now. Banks will have until 2015 to meet the minimum core Tier 1 capital requirement, which consists of shares and retained earnings worth at least 4.5 percent of assets.
An additional 2.5 percent “capital conservation buffer” will have to be in place by 2019.
Many large U.S. banks have a head start after large equity issues last year following regulatory “stress tests” that sought to determine how they would fare if the economy proved weaker than expected.
Representative Spencer Bachus, the panel’s top Republican, criticized the capital accord for putting a heavy burden on banks.
“Higher capital standards means less credit, less credit means fewer jobs and less economic growth,” the Alabama lawmaker said. “We need to make sure the standards we adopt really do make the financial system more resilient without needlessly sacrificing more jobs.”
Sheila Bair, the head of the U.S. Federal Deposit Insurance Corp, told the Reuters Washington Summit on Monday that the capital rules were manageable and said U.S. regulators may require a faster implementation.
Reporting by Dave Clarke and David Lawder; Editing by Kenneth Barry and Andrew Hay