National Systemic Banks to Face Core Capital Rules in Basel Plan

Global regulators will seek a deal this year to strengthen capital requirements and supervision at banks whose failure would harm national economies.

The Basel Committee on Banking Supervision is preparing to identify so-called domestically systemic lenders and discussing “possible policy tools” that regulators should use to handle their collapse, Teo Swee Lian, deputy managing director of the Monetary Authority of Singapore, said in an e-mail.

Rules on the amount of core capital that the lenders should hold are expected to be “an important part of the policy framework,” said Teo, a member of the Basel group.

The Group of 20 nations last year agreed on 29 banks that should face tougher capital requirements than the minimum levels set by international regulators because their failure would imperil the global economy. Deutsche Bank AG, BNP Paribas SA and Goldman Sachs Group Inc. were among lenders targeted for these so-called core capital surcharges, which range from 1 to 2.5 percentage of the bank’s risk weighted assets.

G-20 regulators said earlier this year that they would seek to expand the definition of too-big-to-fail financial firms beyond the 29 banks, adding domestic lenders, clearinghouses and insurers.

The Basel committee is aiming to conclude work on the measures “in the second half of 2012,” Teo said.

FSB Meeting

The Financial Stability Board, a group bringing Basel regulators together with financial ministry officials and central bankers from the Group of 20 countries, met in Hong Kong today. The FSB agreed at the meeting on a draft method for identifying insurers that should be labeled as too-big-to-fail, Mark Carney, the board’s chairman, told reporters.

The Basel committee agreed in 2010 to more than triple the core capital that all banks must keep to stave off insolvency, and to force them to hold minimum amounts of easy-to-sell assets. The G-20 agreed that the revised requirements, known as Basel III, must be written into national laws by the end of 2012, and will come into full effect in 2019.

“Singapore-incorporated banks start from relatively strong capital and liquidity positions,” Teo said. The Singapore regulator “has always set capital requirement levels that are higher than the Basel minimums.”

The Basel committee brings together banking regulators from 27 nations including the U.S., U.K. and China.

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