Arlington blog

Basel committee seeks 9 percent Tier 1 capital: report

FRANKFURT (Reuters) – Global banks will be required to hold Tier 1 capital of nine percent including a 3 percent so-called "conservation buffer," German weekly Die Zeit reported, quoting a draft proposal from the Basel Committee, the body tasked with drawing up global banking rules.

Die Zeit's online edition also said regulators can demand banks accumulate a so-called "anti-cyclical buffer" of 3 percent so that Tier 1 capital requirements can rise to 12 percent in boom times.

Previously regulators required a Tier 1 ratio of no less than 4 percent.

The Basel committee was set to discuss the proposal on Tuesday and aims to finalize Basel III by agreeing how much extra capital banks will have to hold and the length of time they have to weed out lower quality capital from core capital.

Germany's Bafin could not be reached for comment, while the Bundesbank declined to comment on the report. The two bodies represent Germany in the Basel Committee.

Banks will be required hold common equity -- which consists of pure equity plus retained earnings -- of five percent "after deductions," Die Zeit said, adding the requirement will come into force in 2013.

As part of Core Tier 1 capital requirements, which are more stringent that Tier 1 requirements, the conservation buffer and anticyclical buffer will be 2.5 percent each, the paper said.

The introduction of a conservation buffer will be staggered between 2014 and 2018, the paper said.

Furthermore, capital requirements can rise to 16 percent, if Tier 2 requirements are included, the paper said. This figure includes a 6 percent Tier 1 capital buffer, 4 percent of Tier 2 capital, the 3 percent conservation buffer, and the 3 percent anticyclical buffer. Banking regulators and central bank officials from across the world meet on Tuesday to finalize their Basel III package of tougher bank capital and liquidity rules.

It seeks to apply lessons from the financial crisis so that states are less likely to have to rescue banks again in the next crisis. Regulators and bankers disagree over how much the new rules will impact the economy.

(Reporting by Edward Taylor and Alexander Huebner; Editing by Dan Lalor)