So near, and so far, Basel.
Australia’s Banking Day had the basic numbers overnight on what looks to us like a last-minute climbdown on bank capital:
Australian banks are unlikely to face any problems meeting Basel III capital hurdles after several key capital ratios were eased in Tuesday’s meeting of the Basel Committee…
However, Banking Day understands that the meeting compromised on a lower figure of 5.5 per cent, under pressure from nations including Germany, France, Italy and Japan. Those countries all want to reduce the pressure on their troubled banks.
Of the 5.5 per cent, 4.5 per cent will have to be “core” capital – essentially ordinary share capital and retained earnings. That figure is also 0.5 per cent lower than originally proposed.
While the BBC’s Robert Peston filled in the blanks on Thursday:
Central bank governors and senior regulators are set to ordain that banks must have a minimum core tier one capital ratio, including a new so-called “buffer” to protect against extreme economic conditions, of 7%, I can reveal…
Although this new 7% minimum ratio of core capital (in the form of equity and retained earnings) to assets (loans and investments) as measured on a risk-weighted basis represents a significant increase, some will argue that the ratio is still too low.
One reason for this is that the absolute minimum capital ratio, without buffer, will be around 4%, or double the previous minimum.
It looks like 4.5 per cent core Tier 1 + 2.5 per cent conservation buffer = Peston’s 7 per cent. Which is not what was feared. And do note that the mysterious Basel countercyclical buffer is MIA in these revelations.