Banks Cut Basel III Shortfall by $215 Billion in Mid-2012

The largest global banks increased their core reserves by about 166 billion euros ($215 billion) during the first half of last year, regulators said.

The world’s 101 biggest banks would have needed an extra 208.2 billion euros to meet so-called Basel III capital rules had the standards been enforced in June 2012, the Basel Committee on Banking Supervision said today in a statement, compared with a 374 billion-euro deficit at the end of 2011.

Lenders made headway toward meeting their Basel obligations, while the U.S. and European Union struggled to meet a January deadline to start implementing the Basel III accord. The measures -- scheduled to be fully in force by 2019 -- will more than triple the core capital that lenders must hold to at least 7 percent of their assets, weighted for risk.

The pace of implementation of Basel III “has been adjusted intentionally to support banks on the mend,” International Monetary Fund Managing Director Christine Lagarde said in a speech in Frankfurt today, “but delays also reflect difficulties in agreeing on the way forward, and pushback from industry, averse to changing outmoded and dangerous business models.”

Global rulemakers have clashed with lenders over the severity of the capital and liquidity rules, which were set out in 2010 as part of an overhaul of banking regulation in the wake of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc.

Leverage Ratio

The biggest banks also had an average leverage ratio of 3.8 percent versus a target of 3 percent ratio for banks’ equity to debt. The measure is designed to be a backstop to capital requirements, helping to contain excessive indebtedness.

The biggest lenders in Europe would have needed a combined 112.4 billion euros to reach the core tier one capital target of 7 percent, the European Banking Authority said in a separate statement. Around 93 percent of the EU banks are above the Basel III minimum of a 4.5 percent core tier one capital ratio, according to the report.

“The committee appreciates the significant efforts contributed by both banks and national supervisors to this ongoing data collection exercise,” the Basel group said.

Both the EU and the U.S. missed a January 2013 deadline to begin phasing in the standards, and have said they will seek to apply them from next year.

The lenders also would need a combined 2.4 trillion euros to meet a liquidity rule set by the Basel committee, which would force banks to back long-term lending with funds that are unlikely to dry up in a crisis.

Banks can address shortfalls in meeting capital requirements by either boosting their reserves or by reducing their assets weighed for risk.

To contact the reporter on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net;

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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IMF Managing Director Christine Lagarde

Chris Ratcliffe/Bloomberg

International Monetary Fund Managing Director Christine Lagarde said that the pace of implementation of Basel III “has been adjusted intentionally to support banks on the mend.”

International Monetary Fund Managing Director Christine Lagarde said that the pace of implementation of Basel III “has been adjusted intentionally to support banks on the mend.” Photographer: Chris Ratcliffe/Bloomberg