The timeframe for the introduction of these rules would run in parallel with the Basel III capital conservation and countercyclical buffers (between 1 Jan 2016, and the end of 2018). Also announced was the development of an assessment methodology for G-SIBs, which considers variables such as "size, interconnectedness, lack of substitutability, global (cross-jurisdictional) activity and complexity". Banking system supervision, including details such as setting minimum capital ratios, is a key activity for many of the world's central banks, and can provide important opportunities for macro-prudential monetary policy tools e.g. counter-cyclical capital requirements (i.e. raising requirements during credit booms).
Saturday, June 25, 2011
BIS Agrees on Additional Capital Requirements for "G-SIBs"
The Bank for International Settlements announced it had agreed on proposed capital requirement rules for G-SIBs (Globally Systemically Important Banks), in effort to mitigate the risks of future banking system and financial crises. The new rules would require that G-SIBs' Common Tier 1 (CET1) capital ratios be increased by 1% to 2.5% (on top of Basel/local regulatory required capital ratios) "depending on a bank's systemic importance". Jean-Claude Trichet, ECB president, said of the proposed rules: "the agreements reached today will help address the negative externalities and moral hazard posed by global systemically important banks."