(FT) Basel Committee softens new rules on bank capital

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(FT) Global banking supervisors have softened new rules forcing investment banks to hold much more capital against their trading books, after heavy lobbying from the banking industry.

The rules are designed to discourage investment banks from taking too much risk on to their own books as they buy and sell securities from clients, with the ultimate aim of reducing the chances of a bank collapsing.

The Basel Committee on Banking Supervision said on Thursday that the amount of capital banks had to maintain for their trading books would be on average 40 per cent higher than they hold now.

A previous draft of the rules — much bemoaned by banks — would have increased the capital demand by a weighted average of 74 per cent, a study published in November showed.

Rob Smith, banking director at KPMG, said the lobbying efforts of the banking industry had “clearly paid off”. He added: “The capital requirements for credit investments and securitised assets have been reduced substantially and that was a huge area of focus for large US firms.”

Banks have complained that the rules will drain liquidity in key markets, which have been hit by rules introduced in 2009 pushing banks to slash their inventories.

The increase in capital requirements has fallen fourfold in some areas such as residential mortgage-backed securities. But the changes are still expected to require a costly and time-consuming overhaul at many banks.

“In spite of the fact that capital requirements are lower than expected, there is still a huge amount of work to be done by the banks,” said Mr Smith at KPMG, which estimated it would cost the banks an extra $100m-$150m each to implement over three years.

The effect of the rules varies greatly across banks. The November study found that the most adversely affected institution would have to set aside nine times as much capital against its trading book as it does now.

The latest version of the rules, which takes account of “refinements” agreed in December, does not give a full breakdown of the bank-by-bank impact. But it says the weighted average increase in market risk capital would be 40 per cent while the median, or midpoint, of increases, would be 22 per cent.Basel-Committee-softens-new-rules-on-bank-capital-FT