The world's top bank regulators agreed on far-reaching new rules intended to make the global banking industry safer and protect international economies from future financial disasters.
The new requirements will more than triple the amount of capital that banks must hold in reserve, an effort to move banks toward more conservative positions and force them to maintain a larger cushion against potential losses. They come two years after the collapse of Lehman Brothers set off a worldwide banking crisis that required billions in government bailouts.
The centerpiece of the agreement is a measure that requires banks to raise the amount of common equity they hold — considered the least risky form of capital — to 7 per cent of assets from 2 per cent. Together with other requirements intended to safeguard against risk, it could significantly alter the way banks do business.
Banks have warned that the new regulations could reduce profits, strain weaker institutions and raise the cost of borrowing. But regulators provided a lengthy transition period to give banks time to adjust — the better part of the decade for some of the strictest rules.
"The agreements reached today are a fundamental strengthening of global capital standards," Jean-Claude Trichet, president of the European Central Bank and chairman of the group, which included financial officials from 27 countries.
The recommendations by the group, which includes Ben S. Bernanke, chairman of the Federal Reserve, are subject to approval in November by the G-20 nations and then enactment by individual nations before they become binding. The group set a deadline of January 1, 2013, for member nations to begin to phase in the rules, known as Basel III.