July 16, 2010 / 11:17 AM / 10 years ago

Factbox: Basel proposals for countercyclical capital buffers

FRANKFURT (Reuters) - The Basel Committee on Banking Supervision set out proposals on Friday for banks to build up capital buffers to deal with future financial crises.

Banks have until Sept 10 to comment on the committee’s countercyclical capital buffer proposal. Below are the key points of the plans.

Click www.bis.org/publ/bcbs172.pdf for full document.

* Each national authority would decide the exact size of capital buffers. The amount would vary depending on the economic situation. Banks would be forced to stockpile capital in times of strong growth to give them funds to dip into in times of stress.

* Banks would be given a year to get their capital buffers to the required level if an authority decides to raise the threshold. In they do not comply, dividends and other distributions of earnings would be restricted.

* Banks’ international divisions would have to adhere to capital requirements in the countries where they are located rather than just in the bank’s home jurisdiction.

This means that each bank’s buffer would effectively be equal to a weighted average of the add-ons applied in jurisdictions to which they have exposure.

* The home authorities would always be able to require that banks they supervise maintain higher buffers if they judge the host authorities’ buffer to be insufficient.

* The home-host aspects of the proposals are one of the areas that remain under consideration at the Basel Committee.

* Calculating the buffers should include judgment from individual authorities, but a baseline methodology has been devised which would require additional capital to be set aside when the credit/GDP relationship exceeds its long-term trend by an amount which, on the basis of past experience, suggests excess credit growth and a build-up of system-wide risk.

* Buffers should be reviewed to evaluate their performance.

* Buffer add-ons should be calculated with at least the same frequency as minimum capital requirements.

* Banks will be free to do what they want with built-up surpluses if the authority decides these are no longer required.

* The Basel Committee will maintain a website which collates the prevailing buffer add-ons in effect in each jurisdiction.

Reporting by Marc Jones and Sakari Suoninen; Editing by Hugh Lawson

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