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Basel Committee expected to raise capital reserve limit to 7%

The Basel Committee is expected to approve an increase in the core minimun capital reserve limit from 2 per cent to 7 per cent when they meet on Sunday, according to reports.

BBC business editor Robert Peston says the rise faced stiff competition, led by Germany where banks tend to have much lower reserve levels in the form of equity and retained earnings.

The new rules were drawn up by the committee on banking supervision at a meeting in Switzerland on Tuesday.

Any bank which fails to keep above their buffer would have to curb payouts such as bonuses and dividends, according to reuters.

Peston says the UK, US and Switzerland were pushing for it to be set  at 10 per cent.

He adds that it is likely to cause a short-term slow down of lending as most banks -particularly in Europe – hold reserves below that figure but that many in the UK currently hold reserves  of around 10 per cent.

If the measure is passed by the committee at the weekend it will need to be ratified by the heads of governments at the G20 summit in November.

Mediobanca bank analyst Chris Wheeler has been reported as saying: “There seems to be a consensus building around seven per cent core tier 1 ration and the market is pretty well there already, in fact it is comfortably above it in many cases.”



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