Monday, August 30, 2010

Americas-Europe/Russia: U.S. and Europe fighting over capital requirements in international banking regulations

Negotiators have made significant progress as the unofficial September deadline for the Basel III Accord nears. The accord consists of international recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision in Switzerland. The third of the Basel Accords is being written in response to the recent global financial crisis.

The current sticking point is over the amount of "safety capital" financial institutions should be required to maintain as a buffer for risk. Basel officials have recommended the level be set at 5% of assets, i.e., loans and investments, with an additional 2.5% buffer accessible to banks during periods of difficulty. 

A deal seems likely to conclude with the level set at 7 or 8% including the additional buffer. Since most U.S. firms already keep a larger percentage of safety capital on hand than most European banks, the new requirements are likely to be more onerous for the latter.


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