Basel group calls for stricter rules

TOUGHER conditions for banks could be on the cards after the Basel Committee of central bankers called for stricter rules to protect depositors and shareholders from loss.

The influential global finance regulatory group said yesterday that banks would have to store more funds or look to investors for fresh capital in as little as three years time in order to ward off any repeat of the global financial crisis triggered last year.

The committee also demanded higher requirements for the capital which banks maintain to shield depositors and shareholders from loss

Rym Ayadi, from the Centre for European Policy, said there were many areas in finance that were currently poorly regulated, in particular investment banking.

"If these new rules are implemented...this would be the end of that,” he said. “It could change the way banks work, making them more focused on financing the real economy," he said.

Though the recommendations are not set in concrete it will have a profound effect on the European Union who use them as a reference.

Stefan Walter, the committee’s secretary general, said the changes should take effect by the end of 2012, but could be delayed if the global economy was still weak.

“We are going to do an impact assessment and finalise the proposals by the end of next year,” he said. “By then, we will also make a decision about the appropriate implementation time line. That depends on the economic development.”

However, the Basel Committee did not report the proposed limits for higher capital requirements in its critical report on liberalised banking practice.

Any changes are expected to be gradual. Some of the regulation chances put in place by the committee in 2004 were soothed in over a 10-year transition period, allowing time for adjustment.