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UPDATE 2-Fed to consider Basel III rules next week
May 30, 2012 / 4:42 PM / 5 years ago

UPDATE 2-Fed to consider Basel III rules next week

* Fed to meet June 7 on whether to propose capital rules

* Basel III capital rules are at core of financial reforms

* Banks balking at extra capital buffer

* Fed to also vote on capital rules related to trading books

By Dave Clarke

WASHINGTON, May 30 (Reuters) - The Federal Reserve is scheduled to vote next week on a highly anticipated proposal for implementing an international agreement on higher capital standards for banks, known as Basel III.

The Fed announced the June 7 meeting, which will be open to the public, on its website on Wednesday. The U.S. central bank is expected to put the proposal out for public comment.

The agreement is the cornerstone of efforts by international regulators following the 2007-09 financial crisis to make sure the global banking system is more resilient.

The accord, which is to be phased in from 2013 through 2019, will require banks to maintain top-quality capital equivalent to 7 percent of their risk-bearing assets.

Banks have mostly agreed this minimum level is necessary.

On top of that, however, 28 global “systemic” banks may have to hold up to an additional 2.5 percent buffer.

This provision would hit the largest international financial institutions such as JPMorgan Chase & Co, Goldman Sachs Group Inc and Deutsche Bank AG.

The surcharge has been the source of much consternation in the among the largest banks, with executives and their lobbyists arguing it goes too far and will hurt their ability to lend.

Regulators and other supporters of the standards have dismissed these complaints, saying the banks are overstating the lending impact and that world economies will benefit from a more stable financial system.

The extra capital requirement on large banks is set to be phased in between 2016 and 2018.

The Basel capital standards have been agreed to by the leaders of the Group of 20 nations and countries besides the Untied States are busy putting it into practice.

European Union countries are working on a law to implement the standards with some EU states, such as Britain, are pushing for national discretion for even tougher capital buffers.

The Fed announced on Wednesday it also plans to vote on a final rule implementing new capital standards regarding risks posed specifically by banks’ trading books.

In response to the 2007-2009 financial crisis regulators from across the world agreed to update their capital guidelines to better take into account the risks from such things as securities made up of mortgages, which played a key role in the meltdown.

This update for trading books is known as Basel 2.5.

U.S. regulators had delayed putting this rule into place because the 2010 Dodd-Frank financial oversight law bans the use of work done by credit rating agencies in U.S. banking regulations. The agencies have struggled to find alternatives.

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