- Associated Press - Monday, September 13, 2010

BASEL, Switzerland (AP) — Bankers and analysts said new global rules could mean less money available to lend to businesses and consumers, but they praised a decision to give them plenty of time — until 2019 — before the so-called Basel III requirements come into full force.

The rules, which gradually will require banks to hold greater capital buffers to absorb potential losses, are likely to affect the credit industry by imposing stricter discipline on credit cards, mortgages and other loans.

Requiring banks to keep more capital on hand will restrict the number of loans they can make, but it will make them better able to withstand the blow if many of those loans go sour.

European Central Bank Chairman Jean-Claude Trichet said the leading central bankers who worked on the agreement, reached Sunday in Basel, were convinced that the new measures were a “fundamental strengthening of global capital standards,” which would make a “substantial” contribution to economic stability and growth.


Mr. Trichet declined to estimate how much money banks would need to raise to meet the new requirements.

He also said he had “full confidence” that the measures would be implemented by U.S. authorities, despite their not fully having adopted the last round of Basel rules.

In some countries, where national regulators were quick to clamp down on risky lending practices following the credit crunch, the new rules, agreed Sunday in Basel by top central bankers and regulators, actually may release some pent-up capital that banks have been holding back in anticipation of far tighter regulation, analysts said.

Under the new rules, known as Basel III, the mandatory reserve — known as Tier 1 capital — would rise from 4 percent to 4.5 percent by 2013 and reach 6 percent in 2019.

In addition, banks would be required to keep an emergency reserve known as a “conservation buffer” of 2.5 percent.

In total, the amount of rock-solid reserves each bank is expected to have will be 8.5 percent of its balance sheet — but not until the end of the decade.

Banks in Europe that have been weighed down by problems get a little more time to adjust to the rules,” Annika Winsth, chief economist of Stockholm-based Nordea bank, said Monday. “It is positive that they are given an opportunity to handle this.”

Relief at the generous time frame and lower-than-expected minimum reserves lifted banking stocks across the board Monday.

France’s banking federation said French banks were “among those with the greatest capacity to adapt to the new rules.”

In a statement, the federation noted, however, that it remained concerned that the new rules would put “a strong constraint that wil inevitably weigh on the financing of the economy, especially the volume and cost of credit.”

Down the line, consumers could see banks tighten their rules on loans and possibly impose higher banking charges as financial institutions spend the next few years building reserves to meet the new regulatory requirements.

Story Continues →