Fed delays Basel III bank capital buffer rules
Regulators agree delay was necessary due to “wide range of views”
By Ronald D. Orol, MarketWatch
Nov. 9, 2012, 10:35 a.m. EST
WASHINGTON (MarketWatch) — U.S. regulators on Friday delayed the
effective date of a global agreement on greater bank capital buffers
reached in response to the financial crisis of 2008.
The rule delay could help big banks such as J.P. Morgan Chase & Co.
JPM
+0.54%
, Citigroup Inc.
C
-0.19%
, Goldman Sachs Group Inc.
GS
+0.76%
who must ultimately comply with the rules, as well as smaller banks who also will have to meet the requirements.
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President Barack Obama will call on Congress to take steps to help the economy and reduce the deficit.
The rules are considered a critical step to ensure large institutions
are sufficiently cushioned against future financial shocks and the
agreement is being implemented in response to the financial crisis of
2008.
Specifically, the Federal Reserve and two other bank regulators
introduced a proposal in June to implement the global agreement known as
Basel III that suggested an effective date for institutions to comply
of Jan. 1.
However, the U.S. regulators agreed Friday that “due to the wide range
of views” expressed by interested institutions and others that a delay
was necessary.
They did not provide a substitute effective date for the rules, arguing
that they are “working as expeditiously as possible to complete” them.
The delay comes as international regulators have delayed implementation
of some other bank rules. Specifically, Mark Carney, the governor of the
Bank of Canada and the chairman of an international bank-regulation
standard setter said in a letter that authorities from countries that
are members of the group are giving themselves six additional months
until mid-2013 to set up so-called “living wills” for banks to explain
how they would divide assets if they fail.
Read about how weak big bank risk controls are still a global concern
Based on the bank capital proposal, which implements the international
accord agreed to in September 2010, banks will be required to hold the
strictest form of common-equity capital at 7% of their risk-based
assets, up from 2% currently. The international agreement called for the
regulation to be phased in between January 2013 and January 2019.
However, the U.S. regulatory delay indicates that U.S. banks won’t start
phasing in its rules starting in January 2013.
The largest global financial institutions are required by a global
agreement to hold additional capital buffers of between 1% and 2.5%. The
Financial Stability Board, the global standard setter under Carney’s
oversight, last week released a revised list of banks that will need to
hold additional capital. For the first time, the board also identified
how much more money each will need to hold, putting them in four
different categories.
Based on the rankings, J.P. Morgan, Citigroup, Deutsche Bank AG
DB
-2.13%
and HSBC Holdings PLC
HBC
-0.25%
will likely need hold much more extra capital of 2.5% each.
Read about how B. of A. and Wells rise in global ranks
In June, the Fed said that some institutions had a long way to go to
meet the capital rules. The largest 19 U.S. bank holding companies would
have a capital shortfall of $50 billion, if the Basel III capital
buffer rules proposed Thursday were to be made effective immediately, a
Fed official said at the time.
The delay comes as Wayne Byrnes, the head of the Basel Committee on
Banking Supervision, earlier this week reportedly said that the Basel
III bank capital rules are critical to nursing the international
financial system back to health and that more is needed.
Ronald D. Orol is a MarketWatch reporter, based in Washington.
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