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Factbox: Central bankers on home stretch with bank capital rules
December 4, 2017 / 10:19 AM / 8 days ago

Factbox: Central bankers on home stretch with bank capital rules

LONDON (Reuters) - Central bankers are expected to give the green light on Thursday to a set of capital requirements for banks, a decade after taxpayers had to bail out lenders in the 2007-09 financial crisis.

The requirements complete the Basel III accord, much of which is already in force to increase capital buffers.

They have been drafted by the Basel Committee of banking supervisors from the world’s leading financial centers.

The aim is to end the big variation in how much capital big banks hold by restricting their use of computer models for calculating buffers. The vast majority of lenders use the more conservative “standard approach” to calculating capital, as set out by regulators.

Banks have criticized the package, saying it will bump up capital requirements significantly, but central bankers say the overall level of capital in the system won’t change much.

Basel’s oversight body chaired by European Central Bank President Mario Draghi, meets on Dec. 7 and is expected to announce completion of the package at 1600 GMT.

REMAINING BASEL III ELEMENTS

* The “standard approach” for measuring risks from credit or loans will be eased to encourage its use among big banks as an alternative to in-house models. Credit risk accounts for the biggest portion of a capital buffer.

* Banks will be stopped from using models for calculating capital to cover holdings of stocks.

* Banks won’t be allowed to use models for calculating how much capital they must hold to cover “operational” risks like human error, misconduct or online banking being hacked.

* An add-on to the leverage ratio for the world’s biggest banks. The ratio, a broad measure of capital to assets on a non-risk-weighted basis, is 3 percent for most banks. The 30 global banks will have a top up.

* An “output” floor below which banks cannot go, irrespective of what their models say is the right amount of capital. It has taken over a year to agree, and is expected to be set at 72.5 percent, meaning it can’t go more than this percentage below what the standard approach indicates is the right amount of capital.

OTHER BASEL WORK

* Sovereign debt: Basel may update on its work on how much capital a bank needs to cover government debt holdings, a sensitive issue in the euro zone, where such debt came under heavy pressure in 2010.

* Fundamental Review of the Trading Book: These rules have already been approved but look set to be tweaked. They determine how much capital a bank holds against trading book assets like shares. Basel is expected to make them less harsh when using models.

WHAT NEXT?

* Basel is expected to allow a long phase-in for some of the Basel III rules being approved, meaning they won’t be binding until around the middle of the next decade, or 20 years or so since the financial crisis kicked off.

* Basel has said it won’t come up with another batch of new rules anytime soon as banks call for a regulatory pause to digest what’s already been passed and the United States signals little appetite for additional global regulation.

Reporting by Huw Jones, editing by Larry King

Our Standards:The Thomson Reuters Trust Principles.
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