Basel Committee Outlines Capital Reserve Requirements

Article excerpt

The Basel Committee on Banking Supervision hammered out reforms on Basel III in September that could increase minimum bank capital reserve requirements.

Under the agreements, the highest form of loss-absorbing capital--the minimum common equity capital ratio--will increase from 2 percent, before the application of regulatory adjustments, to 4.5 percent after stricter adjustments. Banks will have until Jan. 1, 2015, to phase in the 4.5 percent standard.

The committee's reforms will also require banks to hold a "capital conservation buffer" to withstand future periods of stress. The "buffer" increases from 0.625 Per cent in 2016 to 2.5 percent by Jan. 1, 2019, which will bring the minimum common equity capital ratio to 7 percent.

The minimum Tier 1 capital ratio, including common equity and other qualifying financial instruments with stricter criteria, will increase from 4.5 percent in 2013 to 6 percent by 2015.

While Basel III will apply directly to only the largest international banks, it will also set the tone for bank regulators throughout the world for addressing capital requirements for all banks, according to the Mortgage Bankers Association. …

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