Q&A-How are Basel III bank rules being finalised?

LONDON, Sept 10 (BestGrowthStock) – Central bank governors and heads
of supervision from 27 countries meet in the Swiss town of Basel
on Sunday to agree tougher bank capital and liquidity standards.

The Group of 20 leading countries (G20) called for the Basel
III reform to apply lessons from the financial crisis so that
states are less likely to have to rescue banks again in the next
crisis.

Deutsche Bank (DBKGn.DE: ) is set to lead rivals raising
billions of euros in order to meet the new requirements.
[ID:nLDE6890CH]

WHO IS MEETING?

The Group of Governors and Heads of Supervision meets on
Sept. 12 and is expected to approve a set of recommendations to
finalise Basel III by fixing the new, higher levels of capital
and liquidity banks will have to hold and the timespan for
complying.

The Group is the oversight body of the Basel Committee on
Banking Supervision, which comprises of regulatory and central
bank representatives from nearly 30 countries.

The Basel Committee agreed a set of recommendations on
capital levels and phase-in periods at its Sept 7 meeting
without publishing details.

The Group of Governors and Heads of Supervision is chaired
by Jean-Claude Trichet, president of the European Central Bank
and includes other leading governors such as Federal Reserve
Chairman Ben Bernanke and Mervyn King from the Bank of England.

WHAT’S BEING DECIDED?

** Core Tier 1: Bankers, regulators and analysts expect a
new ratio of 4.5 to 6 percent. This compares with a core ratio
of about 2 percent under the current Basel II global accord.

The core ratio will have to be in the form of retained
earnings or shares. Many leading banks already hold Tier 1
capital of 10 percent or more.

** Capital conservation buffer: A new buffer that will sit
on top of Tier 1. If a bank fails to stay above the buffer, it
faces restrictions from supervisors on payouts such as bonuses,
dividends and share buybacks.

Size of buffer expected to be set at 2 to 3 percent but
unclear what quality of capital will be required.

** Countercyclical buffer: A new buffer banks will have to
build up if supervisors see excessive credit levels in the
broader economy. It could tapped when the economy turns sour and
sparks losses on bank loans. This buffer expected to be set at
2-3 percent.

WHEN WILL THE RULES KICK IN?

Bankers and analysts expect banks to have to start
introducing the new rules from 2013, with between five and 10
years to fully implement the reform which also contains other
elements that have already been finalised, such as a leverage
ratio and long-term liquidity rules. [ID:nLDE66Q266]

Separate, tougher capital rules for bank trading books are
due to take effect at the end of 2011 after being delayed a
year.

WHAT IS THE NEXT STEP?

It is unclear if the new rules will be unveiled on Sunday
evening or Monday morning.

Leaders of the Group of 20 countries, who called for the
reform, will give final approval to Basel III in November.

(Editing by Ron Askew)

Q&A-How are Basel III bank rules being finalised?