Global financial regulators and central bank chiefs have reached a major agreement on the Basel III accord, which would impose new capital requirements on the world's banks in an effort to avert future financial meltdowns. Officials aim to spread the changes out over time to lessen the impact on bank profits, so as not to squelch the economic recovery.

"The agreement represents a significant step forward in reducing the incidence and severity of future financial crises, providing for a more stable banking system that is less prone to excessive risk-taking, and better able to absorb losses while continuing to perform its essential function of providing credit to creditworthy households and businesses," the U.S. Federal Reserve, FDIC and Office of the Comptroller of the Currency said in a joint statement.

"A Fundamental Strengthening"


The pact was reached at a meeting of central bank governors and officials from 27 countries led by European Central Bank President Jean-Claude Trichet. U.S. Federal Reserve Chairman Ben Bernanke (pictured) met with other officials at the Basel Committee on Banking Supervision in Switzerland Sunday. Bernanke was joined by New York Fed President William Dudley and Federal Deposit Insurance Corp. Chairman Sheila Bair.

The Basel Committee was created in 1974 by the central bank chiefs of the G10 group of powerful countries (now expanded to 20) in order to improve coordination among countries in a rapidly globalizing world economy. Basel III represents the ministers' attempt to update the accord to prevent another financial meltdown.

"The agreements reached today are a fundamental strengthening of global capital standards," European Central Bank President Jean-Claude Trichet said in a statement. "Their contribution to long-term financial stability and growth will be substantial. The transition arrangements will enable banks to meet the new standards while supporting the economic recovery."

Culmination of a Year's Work

"Banks will unarguably be safer institutions," Anders Kvist, head of Treasury at SEB, a bank based in Stockholm which has operations around Europe, told The New York Times.

Global regulators and bank chiefs have been working for a year to craft the new requirements, with the final pieces coming together this weekend, reports said. The main point of the reform is to prevent the world's biggest banks from taking on too much debt and becoming overleveraged, as many were before the collapse of the mortgage bubble. The agreement would require banks to have a safety cushion of capital to protect them from financial shocks.

Some bankers, including those representing Germany, have warned that Basel III would cut into their profits and push up the cost of credit for borrowers. Officials hope to spread the changes out over time to not harm bank performance, which could hamper the increasingly wobbly economic recovery.

Agreement on the measure itself is noteworthy, given the number of countries and private interests involved. "It is a milestone," Kvist told The Times. "There will be more security in how to plan your balance sheet going forward and that's a very good thing."

Global finance officials generally praised the agreement. The British Bankers' Association said Basel III would improve the stability of the financial system but that urged the changes to take place over an extended period of time.

Reform, but How Fast?

"The transition though is the critical bit as the rules take money out of the economy," British Bankers' Association CEO Angela Knight said in a statement cited by Dow Jones Newswires. "Even though the U.K. banks are in a much stronger place than most on capital, the Basel changes need to be implemented over a long timetable and very carefully sequenced to avoid prolonging the downturn."

The finance officials agreed that banks would maintain a core "Tier 1" -- which refers to a bank's main reserves -- capital ratio of at least 6% of their risk-bearing assets, well higher than the 2% banks (4% including common stock) they had maintained prior to the financial meltdown. There would also be a 2.5% common equity buffer requirement.

While officials hope to spread implementation of the new rules out over time, banks will have less than five years to comply with the basic ratio requirements and 10 years to comply with the buffer requirements. The G20 nations are expected to ratify the Basel III agreement at its meeting in November.

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DemocracyInPeril

Americans should not trust ANY involvement with the G20 and our country's finances. We are getting deeper and deeper into debt. Many think this is purposeful, and we are giving up not only our financial future but our indpendence and sovereignty as a nation. The United States, due to our freedoms, democracy, and economic strength, until recently, has stood in the way of a one world government. In order to achieve it they are attempting, step, by step, to destroy America. Believe it, because it is happening right before our eyes.

September 13 2010 at 11:05 AM Report abuse rate up rate down Reply
avdltd

No use closing the barn door now, the horse is already gone!

September 13 2010 at 10:51 AM Report abuse +1 rate up rate down Reply
philschellenger

ben is so full of crap.

September 13 2010 at 1:59 AM Report abuse +5 rate up rate down Reply
bailoutsos

Smoke and mirrors. The pigs will be back at the trough in a couple of years when all the toxic assets go bad again.

September 13 2010 at 1:25 AM Report abuse +9 rate up rate down Reply
lilcon73

Ummm.....why are we even involved in global banking reform. Something is very wrong here. What we need is American Federal Government reform now!!!

September 12 2010 at 11:51 PM Report abuse +7 rate up rate down Reply
marks970

the fed has to be removed very fast

September 12 2010 at 11:34 PM Report abuse +9 rate up rate down Reply
Gg

Back to silver and gold coins, with a world emblem stamped in the center.

September 12 2010 at 11:31 PM Report abuse -1 rate up rate down Reply
1 reply to Gg's comment
dterraman

at least it would be of real value

September 13 2010 at 6:50 AM Report abuse +1 rate up rate down Reply
turboo996

A disaster in that this is just a safety valve scam to allow Central Governments to continue to abuse their citizens.

September 12 2010 at 10:05 PM Report abuse +8 rate up rate down Reply
pmurph2000

The Federal Reserve can't solve the problem, the Fed IS the problem. End the Fed now so we can return to sound money, not fiat money printed out of thin air

September 12 2010 at 10:01 PM Report abuse +6 rate up rate down Reply
2 replies to pmurph2000's comment
clark8642

You have a very specific comment with no real discussion. What problem(s) can't the Fed solve? How is the Fed the problem? How would that problem be improved by ending the Fed? How would its responsibilities be transferred?

September 12 2010 at 10:14 PM Report abuse -5 rate up rate down Reply
Rockyraimi

Implement JFK's Executive Order 11110 that transfer the power to issue currency to the US Treasury not the private bank called Federal Reserve. The Federal Reserve can create money out of nothing (fiat currency with nothing to back it)and then lend it out at interest. Does anybody see the problem here?

September 13 2010 at 8:51 AM Report abuse +1 rate up rate down Reply
kluj1

ah yah but about twenty years to late. The world banks are in terrible financial shape and this reform will do nothing to stop the meltdown that is ongoing!

September 12 2010 at 9:55 PM Report abuse +5 rate up rate down Reply