In the recent G20 talks in Basel, Switzerland, global regulators agreed on new capital requirements that will require banks to set aside additional capital to weather hard times.
Under the new proposal offered by top central bankers, banks will be limited on how much debt they can run up and banks will have much stricter capital requirements. The new framework for risk management and bank supervision was brought forth by a group of the countries with the 20 largest economies, commonly referred to as the G20.
The central bankers of these nations issued in a statement that these new measures will substantially reduce the severity of and financial and economic stress. The G20 is expected to have a finalized proposl by the end of the year.
The new measures that the G20 is suggesting include new rules on capital requirements, the introduction of a leverage ratio, a minimum standard for funding liquidity, and a system for smoothing banks’ vulnerabilities to economic booms and busts. Regulators at central banks are also considering adding a surcharge for capital to mitigate the risk of systemic banks.
One of the biggest proposals being offered has to due with the quality of banks’ top-tier capital buffers, which must be primarily common shares and retained earnings. Banks must also disclose the make-up of their top tier capital buffers. Regulators are also hoping for a countercyclical capital buffers above that minimum requirement, hoping to offset fluctuations from economic cycles to be laid out.
