FACTBOX - Revised Basel III bank reform

REUTERS - Central banks agreed a raft of changes on Monday to the planned Basel III reform that will make banks hold more capital and liquidity to withstand shocks without taxpayer aid.

The full scope of Basel III won't be clear until later this year when regulators agree a new figure for a bank's Tier 1 capital requirement -- currently 4 percent -- and how long the sector has to phase out lower quality capital.

The Group of 20 leading countries, which is spearheading the reform, is set to endorse the complete Basel III package in November with implementation from the end of 2012.

The following are the main elements of Basel III as amended:

DEFINITION OF CAPITAL

* Aim is to improve the quantity and quality of capital.

* The predominant form of Tier 1 capital must be common equity and retained earnings.

* Banks can include deferred tax assets, mortgage servicing rights and investments in financial institutions to an amount no more than 15 percent of the common equity component.

* The capital requirement of a minority interest in a bank can be counted in the group's capital only if the investment represents a genuine common equity contribution.

* A buffer range will be established above the regulatory minimum capital requirement, and capital distribution constraints will be imposed on a bank when capital levels fall within this range.

LEVERAGE RATIO

* Aims to put a cap on build-up of leverage in the banking sector on a global basis for the first time.

* Will help to lessen the risk that eventual deleveraging could destabilise the sector, and introduce extra safeguards.

* The leverage ratio will be calculated in a comparable manner across jurisdictions, adjusting for any remaining differences in accounting standards.

* A trial leverage ratio of 3 percent of Tier 1, or balance sheets cannot exceed 33 times Tier 1 capital, to be trialled before a mandatory leverage ratio introduced in January 2018.

LIQUIDITY

* The world's first set of common liquidity requirements aim to ensure banks have enough liquid or cash-like assets to tide them through a very severe short-term shock and for less severe conditions in the medium to longer term.

* The short-term liquidity buffer to be mostly sovereign debt but include high-quality corporate debt.

* A one-year horizon liquidity buffer, known as a net stable funding ratio, will be trialled and become mandatory in January 2018.

RISK COVERAGE

* These proposals aim to strengthen capital requirements for counterparty credit exposures arising from banks' derivatives, repo and securities financing activities.

* They aim to apply capital buffers against these exposures and provide incentives to clear bilaterally traded derivative contracts in central counterparties.

* There will be a risk weighting of 1-3 percent on banks' mark-to-market and collateral exposures to a central counterparty.

* The risk weighting on non-centrally cleared contracts will be higher but has not been announced yet.

STILL TO BE AGREED

* How contingent capital could be included in capital calculations.

* Capital surcharges for systemically important banks. Contingent capital could play a role in meeting any systemic surcharge requirements.

* How banks must build up extra capital buffers when there is excessive credit growth. Proposal out to public consultation until September and finalised by year end.

(For more business news on Reuters India click in.reuters.com)