BASEL III Capital Requirements
13 September 2010
The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, has announced a substantial strengthening of existing capital requirements that would see the minimum common equity requirement increase from 2 percent to 4.5 percent. In addition, banks will be required to hold a capital conservation buffer of 2.5 percent to withstand future periods of stress bringing the total common equity requirements to 7 percent. The recommendation needs to be endorsed by the G20 leaders in November in Seoul.
|
Calibration of the Capital Framework Capital requirements and buffers (all numbers in percent) | |||
|
Common Equity (after deductions) |
Tier 1 Capital |
Total Capital | |
|
Minimum |
4.5 |
6.0 |
8.0 |
|
Conservation buffer |
2.5 |
||
|
Minimum plus conservation buffer |
7.0 |
8.5 |
10.5 |
|
Countercyclical buffer range* |
0 – 2.5 |
||
The timetable for the introduction of the new rules is quite favourable. The Tier 1 capital rule will take effect from January 2015, with the capital conservation buffer phased in between January 2016 and January 2019.
National governments will be required to enact the new rules by January 2013 ahead of the date at which banks will need to meet the Tier 1 requirements.
Some banks have already suggested they will need to raise capital and some may suffer the restrictions that would see them having to curtail dividend payments whilst they don’t meet the 2.5% buffer although they will not be forced to raise capital.
There will also be new rules around liquidity which amongst other things require that banks have sufficient liquid assets to cover lending outflows for as long as 30 days. It is suggested this could cause problems for the Australian banks due to the nature and supply of the assets that need to be held to meet this liquidity requirement.
The Reserve Bank of New Zealand will address the new rules in its next Financial Stability Review in November
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