Plans to make banks hold greater capital reserves and limit the amount they can borrow have been outlined by the standard-setting Basel Committee on Banking Supervision, in efforts to salvage a global regulatory framework for the industry after a string of state-backed rescues in the US and Europe. Some policymakers have called for the scrapping of the Basel II framework for global bank regulation, which they blame for allowing banks to operate with relatively low capital reserves. But others believe the framework can be salvaged. The Basel Committee on Thursday signalled that it would encourage banks to make provisions for bad debts throughout the economic cycle, to both boost their capital reserves and restrain growth in new lending. The watchdog also signalled it might introduce rules to limit the absolute amount of debt a bank can take on relative to its capital base. This measure, known as a leverage ratio, had been fiercely resisted by European banks but was recently introduced by the Swiss regulator following the crisis at UBS.

This entry was posted by Gwen Robinson on Friday, November 21st, 2008 at 5:42 and is filed under Capital markets. Tagged with basel. Edit this entry.