BANKS face a tough cap on leverage to stop them using off-balance sheet vehicles to hide their borrowings, under sweeping rules agreed by global regulators last night.
Institutions will be asked to hold tier one capital equal to three per cent of their unweighted assets, the Basel Committee on Banking Supervision said. The ratio will be tested from 2013 until 2017 and could become binding by 2018.
Prominent bankers such as Deutsche Bank’s Josef Ackermann and HSBC’s Stephen Green have argued against such a limit, warning it could curb lending and impact on economic growth. But regulators said such steps were necessary “to discourage excessive risk-taking.”
The leverage ratio was one of a number of updates to the Basel III reforms agreed by all but one of the board’s 27 member countries.
In the face of lobbying from the industry and some governments, the committee delayed its liquidity rule requiring banks to match the duration of their liabilities more closely to their assets, meaning it will stay in “observation phase” until 2018. Banks will also be able to use capital held by minority-owned affiliates towards their tier one needs and count higher-quality bonds as liquid assets.
ECB president Jean-Claude Trichet described the accord as “a landmark achievement” to strengthen the banking sector.