Basel Committee Overseers in `Broad' Agreement on Bank Rules

The Basel Committee on Banking Supervision softened some of its proposed capital and liquidity rules while introducing new restrictions on how much lenders can borrow in order to rein in their risk-taking.

The panel agreed today to allow certain assets, including minority stakes in other financial firms, to count as capital, according to a statement. The committee set a new 3 percent leverage ratio to apply to banks globally, which could become binding as early as 2018, pending further adjustments to the ratio and the method of calculating banks’ assets.

France and Germany have led efforts to weaken rules proposed by the committee in December, concerned that their banks and economies won’t be able to bear the burden of tougher capital requirements until a recovery takes hold, according to bankers, regulators and lobbyists involved in the talks. The U.S., Switzerland and the U.K. have resisted those efforts. Today’s announcement reflects the give and take between the two sides, said Barbara Matthews, managing director of BCM International Regulatory Analytics LLC in Washington.

“They’re definitely making concessions on the definition of capital and the liquidity ratios,” said Matthews, who used to lobby the committee on behalf of banks. “Those were necessary to convince the Germans to accept the leverage ratio. But even though we see a lot of concessions, there are also limits to the concessions. So this isn’t fully caving in.”

Board of Governors

The agreements were announced after a meeting of the group of governors and heads of supervision, which oversees the committee’s work. While the committee narrowed differences when it met two weeks ago in Basel, it left most of the final decisions to its board, members said.

The Basel committee, which represents central banks and regulators in 27 nations and sets capital standards for banks worldwide, was asked by Group of 20 leaders to draft rules after the worst financial crisis in 70 years.

While the G-20 set a December deadline for crafting rules, the board said some of its proposals might not be completed by the end of this year. Liquidity requirements for how much cash and cashable securities banks need to hold against their longer- term liabilities and counter-cyclical buffers above the minimum capital requirement have to be worked on longer, the board said.

European banks lobbied against the proposed exclusion of minority interests that banks hold in other financial institutions. Japan has fought the hardest against the elimination of deferred tax assets, past losses that lenders use to offset tax charges in future years. The U.S. has opposed removing mortgage-servicing rights, contracts to collect payments, which are unique to U.S. banks.

Tests Planned

The compromise announced today would allow a bank to count part of a stake it owns in another financial firm in relation to the risk the capital is supposed to cover at the entity in which it invested. Deferred tax assets and mortgage-servicing rights will be considered in capital up to a limit. The total for all three could not exceed 15 percent of a lender’s common equity.

While the capital ratios allow banks to assign weights to assets based on their risks, the new leverage figure considers all assets without a risk assessment. It will be tested from 2013 until 2017, and banks would be required to start publishing their individual leverage figures starting in 2015.

“The agreements reached today are a landmark achievement to strengthen banking sector resilience,” Jean-Claude Trichet, president of the European Central Bank and chairman of the group that met today at the Bank for International Settlements in Basel, Switzerland, said in the statement. “We will put in place transition arrangements that ensure the banking sector is able to support the economic recovery.”

Bankers including Deutsche Bank AG Chief Executive Officer Josef Ackermann and HSBC Holdings Plc Chairman Stephen Green have said that the new rules may force banks to reduce lending, potentially limiting economic growth.

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net.