LONDON (Reuters) - When world leaders inked a deal on tougher bank capital rules last November lenders breathed a sigh of relief that compliance won't start until 2013.
Speakers at this week's Reuters Future Face of Finance Summit highlighted just how misplaced that relief turned out to be as regulators pile the pressure on banks to meet and even exceed the Basel III rules early.
"The direction is set," European Banking Authority Chairman Andrea Enria told the summit.
"There needs to be more capital, less leverage, more liquidity buffers and a tougher regime on deductions from capital," Enria said.
The Basel accord is being phased in over several years from 2013 to roughly triple to 7 percent the minimum core capital a bank must hold to withstand shocks and leave taxpayers off the hook in the next crisis.
"I think the challenge will be that the markets will want to know now how they are going to meet it not in 2019 or 17 or some of these extended rollout periods that have been provided," said John Walsh, acting head of the U.S. Office of the Comptroller of the Currency, a banking regulator.
"Having an early phase in of those capital requirements would suit me just fine," added Sheila Bair, chairman of the U.S. Federal Deposit Insurance Corp, also a banking supervisor.
Credit Suisse, UBS, Barclays and HSBC have signaled in the past few days how the new capital rules are already crimping dividends or return on equity targets.
In the Far East the issue of capital is less pressing.
"Now Asia, because of the growth fundamentals and where we are in the cycle of growth evolution, plus because we here lived through the Asian financial crisis, the capitalization of banks in Asia is much stronger than in the west," Philip Lynch, chief executive for Asia Pacific at Nomura bank told the summit.
Still, China's banking regulator is drawing up new rules to implement Basel III, with the more systemically important banks subject to a minimum capital requirement of 11.5 percent.
Supervisors are nervously eyeing each other to see if any blink over capital in the face of continued bank lobbying.
"It is important that Basel III is applied in exactly the same way across the world. We need to make sure regulators are not played against each other," Enria said.
Bair urged European leaders to stick to Basel III and not "fall prey" to bank warnings over growth, but others were more confident a global approach on capital will stick.
"I don't see a fundamental arbitrage question in Basel," added Walsh.
At least banks are likely to be allowed to pad out capital with contingent capital or debt that turns into equity in a crisis, helping to ease some of the pressure.
Europe's banks face another and tougher stress-test, prompting regulators in Spain and Sweden to put pressure on banks to go beyond Basel III.
Italy also urged its banks to top up their cushions.
This pressure on capital won't stop anytime soon.
World leaders failed last year to agree on additional requirements on so-called globally systemically important financial institutions (G-SIFIs or the big banks) but there is an appetite to try again this November.
"There is still quite a lot of debate about G-SIFIs and the best way to tackle them," Mark Hoban, UK financial services minister, told the summit.
Britain and the United States have pushed for capital surcharges but face opposition from Germany and France.
"We really want a SIFI surcharge," Bair said.
Hoban signaled flexibility, saying it should be about "outcomes" with, for example, a strong resolution mechanism possibly averting the need for surcharges.
Britain's "four G-SIFIs" may also be viewed differently after recommendations due later this year from a UK banking commission on their future structure, Hoban added.
Faced with a largely unified position among regulators over Basel III, banks in some countries are, nevertheless, hoping to push back on early compliance.
"We have done much of Basel III already. Core Tier 1 are mostly at or around 10 percent," Angela Knight, chief executive of the British Bankers' Association, told the summit.
"There is an argument that says just do more and do it now and forget about the consequences, but it is not an argument that is in keeping with an agenda for growth," Knight said.
Banks in Britain say they are hit not just by having to move early on capital but also on creating liquidity buffers which Basel III does not introduce until 2015.
The BBA wants Hoban to call off the regulatory hounds at the Financial Services Authority but he seems in no hurry.
"We need to remember that the trigger for the financial crisis in the UK was liquidity," Hoban said.
Britain had to rescue Northern Rock bank as wholesale markets froze and Hoban said more evidence was needed from banks on the impact of early introduction of liquidity rules before considering if any action was needed.
"The costings are underway," Knight replied.
Additional reporting by David Clarke and Rachelle Younglai in Washington and Rachel Armstrong in Hong Kong; Editing by Hans Peters