Monday, 13 September 2010

The message from Basel


As Saint Augustine was reputed to have said, “Give me chastity and continence, but not yet”. The world’s financial regulators agreed on measures at the weekend designed to prevent banks from running out of liquidity as they did during the global financial crisis  in the autumn of 2008. The finer points of what is known as Basel III are a bit arcane for mere non-banking mortals but basically the new rules dictate that banks hold 4.5% of common equity and retained earnings up from the current minimum for this core Tier 1 capital of 2%. The London Daily Telegraph reports that the new arrangements also insist on a “buffer” of 2.5% to be built up in good times, taking the total capital required to 7%. Banks can dip into the buffer in times of hardship, but if so, they must restrict dividend payments.
Jean-Claude Trichet, President of the European Central Bank and chair of the committee, called the agreement “a fundamental strengthening of global capital standards”. And well it might be but not in a hurry. Basel III is to be phased in between 2015 and 2018 so we should all hope that there is not another outbreak of financial crisis before then.
See also: 

European banking: not telling the whole truth

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