Basel committee cautioned to hold the line on bank capital

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The Group of Central Bank Governors and Heads of Supervision, which oversees the Basel Committee on Banking Supervision, on Sunday cautioned the committee to keep its pledge not to “significantly” increase how much capital banks will need to hold to guard against potential losses.

The fresh warning comes as the committee is trying by the end of the year to wrap up changes to post-crisis bank capital rules, known as Basel III.

Initial assessments by the 29-member body based in Basel, Switzerland, show that some of the changes called for by policy makers are likely to raise minimum capital standards, making the rules stricter on the biggest banks.

The oversight body’s statement follows recent acknowledgements by both US and European policy makers that regulators’ intent isn’t to make changes to capital rules without weighing the effect it might have on banks’ ability to lend or whether changes would crimp their profits.

Basel officials have said the proposed changes are aimed at creating more consistency among banks, and aren’t designed to force them to hold more capital on their books.

Federal Reserve Board governor Daniel Tarullo, the Fed’s point man on financial regulation, said on September 9 in an interview with CNBC that some of the proposals before the Basel Committee “may have moved in that direction” of raising minimum capital standards, “and so I believe there is an effort to hew to the original purpose of readjusting risk weights while not overall increasing capital requirements”.

Mark Carney, who chairs the Financial Stability Board, an international committee created in the wake of the financial crisis, also renewed a commitment by regulators that changes would “not significantly” increase overall capital requirements across the banking industry, according to an August 30 statement to the Group of 20 leaders.

International regulators are considering limiting how banks calculate their own risks, while requiring them to adhere more closely to formulas created by regulators. The plan has been met with intense resistance from European policy makers, who argue that changes could wind up significantly depressing bank profitability and undermine the continent’s already sluggish economy.

On Sunday, central bankers and the heads of supervision stuck to their goal of completing changes to the capital rules by the end of the year, saying it would help to restore confidence in how banks tabulate their capital.

“The committee has taken significant steps over the past few months toward finalising the post-crisis reforms by the end of the year,” Stefan Ingves, chairman of the Basel Committee and governor of Sveriges Riksbank, Sweden’s central bank, said in a statement.

Write to Donna Borak at donna.borak@wsj.com

This article was published by The Wall Street Journal

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