Speed needed for banks to meet Basel III

City A.M. Reporter
Banks must move quickly to meet tough new rules on capital despite the long-phase in period for some of the requirements, ECB Governing Council member and head of the Basel Committee on Banking Supervision Nout Wellink said yesterday.

In a speech to a closed-door meeting of banking supervisors in Singapore, Wellink said regulators should stop banks from paying out dividends or bonuses if they fall short of the new minimum capital requirement even if the final deadline to meet the rules has not yet passed.

“Banks should not be permitted to increase their distributions if they are still below the ultimate target but feel they can take their time to get there,” he said.

The new Basel III rules, announced earlier this month in a bid to prevent another global credit crisis, require banks to hold top-quality capital totalling seven per cent of their risk-bearing assets, more than triple what they do now. They will start to take effect in January 2013 but changes to the definition of top-quality capital and the requirement for a capital-conservation buffer will not be fully implemented until 2018.

Wellink, who is also head of the Dutch central bank, said regulators were continuing to discuss how to deal with large banks seen as “too big to fail”. But he added that measures being considered by the Basel Committee and Financial Stability Board included “combinations of a capital surcharge, bail-in debt and contingent capital”.

Wellink rebuffed criticism that the new rules would hit economic growth, saying that they made the whole banking system more resilient to a financial downturn. “If, prior to the crisis, banks had the levels of capital we are asking for, we likely would not have experienced such a deep crisis,” he said.