Global financial regulators reached an agreement to toughen oversight of lenders whose collapse would threaten national economies, according to two people with knowledge of the discussions.
The Basel Committee on Banking Supervision, meeting in Stockholm, agreed on rules to monitor lenders that escaped plans last year to force international financial institutions to set aside more money to weather a crisis. The rules create a blueprint to identify and regulate banks that have a large presence in a single country, said the people, who asked not to be identified because the meetings were private.
The euro area’s efforts to contain its debt crisis have been frustrated by the weakness of some banks’ balance sheets, including small and mid-size lenders. Spain this month sought aid to cover bank losses after the International Monetary Fund said the country’s lenders would need at least 37 billion euros ($47 billion) to withstand a weakening economy.
Today’s agreement “gives power and a mandate to local regulators to say to their systemic banks that they will have to hold more capital” than the minimum required under international rules, Patricia Jackson, head of prudential advisory at Ernst & Young LLP in London, said in an e-mail.
The Basel committee brings together banking regulators from 27 nations including the U.S., U.K. and China to coordinate rule-making. The regulators will seek comment on the measures before finalizing them later this year, the people said.
The Group of 20 nations has called for tougher regulation to boost the resilience of lenders whose collapse would cause economic turmoil. The push comes on top of measures published by the Basel committee in 2010 to more than triple the core-capital requirements of all internationally active banks.
Authorities last year published a provisional list of 29 financial institutions that they said should face capital surcharges of as much as 2.5 percent of their risk-weighted assets because their collapse would have global ramifications.
The lenders targeted for these surcharges included Deutsche Bank AG, BNP Paribas SA and Goldman Sachs Group Inc. Regulators also said banks on the list should face heightened supervision.
While the committee doesn’t intend to draw up a list of the new domestically systemic, or D-SIB, banks, the plans include guidance for supervisors on identifying and regulating them, the people said.
The paper will give guidance to authorities on what kinds of instruments such lenders should be allowed to count toward meeting additional capital requirements, one of the people said. The group will leave it to national regulators to specify how much extra capital their identified lenders should hold.
“The committee is trying to achieve the best of both worlds,” Jackson said. “On the one hand, it is giving power to local regulators to impose additional rules on their systemic banks. On the other, it is giving those authorities flexibility to decide what approach to take.”
G-20 leaders meeting in Mexico said the D-SIB measures should be ready for finance minister review in November.
Regulators at the meeting also discussed changes to a proposal requiring banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze.
The Basel group has an end-of-the-year deadline for reviewing the measure, known as a liquidity coverage ratio, which is set to become binding at the start of 2015.
The committee today agreed on some technical adjustments to the stress scenario that banks will be pitted against to calculate if they hold enough liquid assets, one of the people said. The changes will be sent for approval to a group of regulators that oversees the committee’s work.
The committee also agreed on a package of rules for derivatives trading, the person said. This includes an accord on the amount of capital banks should hold against trades passed through clearinghouses and an agreement on the margin requirements for those trades that aren’t centrally cleared.