FRANKFURT (Reuters) - Talks on the way banks around the world gird themselves for shocks can be wrapped up at the weekend, the head of Germany’s Bundesbank Axel Weber said on Wednesday, warning no country should stand in the way of a deal.
Bankers and investors are eagerly awaiting details of the new standards which will determine how much more of a capital cushion banks will have to set aside as a safety net, lessening the need for government bailouts in a future crisis.
“Hopefully we will bring the negotiations to a conclusion at the weekend in Basel,” Weber, who is also a member of the European Central Bank’s Governing Council, said at the annual Banks in Transition conference boasting top executives from the financial world.
Bundesbank Vice President Franz-Christoph Zeitler said the new required core capital ratio would be something under six percent with banks having five to 10 years to comply. Germany has been pushing for global rule makers on the Basel Committee to give its state-backed banks more time to adapt to its higher “Basel III” standards but Weber signaled it was now resigned to a deal that may not be totally to its liking.
“In this weekend’s negotiations, we want to decide the final package,” Weber said. “No country will be able to push through its national position, there will be compromises and everyone will have to be ready to move away from their negotiating position.”
The Basel Committee of central bank and regulatory officials agreed a proposal for tougher new global bank capital rules on Tuesday but plans to keep the details confidential until Sunday.
The recommendations go to the committee’s oversight body, the Group of Governors and Heads of Supervision (GHOS) chaired by European Central Bank President Jean-Claude Trichet, which meets in the Swiss city on Sunday.
Details of the new levels and how much time banks will have to comply may be revealed after Sunday’s meeting.
“The rules will create a considerable need for additional capital, so there will be capital hikes or (the need) to retain earnings,” Zeitler told journalists.
The compromise reached on the new core capital standard on Tuesday was below that in a discussion paper leaked to Die Zeit newspaper this week, Zeitler said.
“Overall, it is lower than what was originally in the secretariat’s proposal,” Zeitler said.
That paper pointed to a minimum core Tier 1 capital ratio of 6 percent, nearly all of which should be in shares or retained earnings compared with the current minimum core ratio of 2 percent.
Basel III will be introduced in steps starting in 2013 with banks likely to get between five and 10 years to fulfill the new basic capital ratios and additional buffers, Zeitler said.
Germany was nevertheless still pushing to include corporate securities and not only sovereign debt in separate, new liquidity buffers that the Basel III package also introduces, he said.
Alessandro Profumo, chief executive of Italian bank Unicredit, said it was still impossible to say what impact Basel III will have on banking profitability.
“We have to readjust our expectations in terms of return on equity,” Profumo said.
The Basel Committee has said the reforms will have a minimal impact on economic growth over time and reap benefits in making the financial system more secure.
Banks dispute this scenario, saying it could jeopardize a faltering economic recovery.
“Our estimate of macroeconomic impact is eight times that of the Basel Committee but they are yet to reveal their model and underlying data,” said Charles Dallara, managing director of the Institute of International Finance, a banking lobby, said.
“We would like to have an open, healthy debate and we have yet to see that,” Dallara told Reuters on the sidelines of a banking event in Mumbai.
The heads of the Group of 20 leading countries, who called for the new rules, hold a summit in November to formally sign off on Basel III.
Additional reporting by Marc Jones and Andreas Framke in Frankfurt and Neha D'Silva in Mumbai, writing by Huw Jones; Editing by Patrick Graham/Mike Peacock