Basel regulators agree on new global rules for banking capital

Nathan Andrada – Fourth Estate Cooperative Contributor

Basel, Switzerland (4E) – Global banking regulators agreed on Sunday to implement changes to one of the major indicators that measure the health of banks as part of a new regulations after the crisis, in an effort to ensure that there is worldwide compliance of rules.

Adjustments were made to the measure, known as a leverage ratio, after “a thorough analysis of bank data,” according to the Basel Committee on Banking Supervision statement released after the meeting of regulators in Basel, Switzerland on Sunday.

Under the leverage ratio, banks are required to hold capital equivalent to at least 3 percent of their total assets, and is calculated based on the gross amount, without making adjustments for the riskiness of a bank’s business.

The committee did not set a timeframe for the new rule to be enforced around the world, whereas the new risk-adjusted capital standards set by the so-called Basel III accords have been applied in many countries over the past year.

New leverage rules will provide lenders more scope to use an accounting practice known as netting to calculate the ratio, and ease proposals on how banks find out the size of their off-balance sheet activities. Other changes help banks avoid the risk of double-counting some derivatives trades, according to the regulators.

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