FT: Differences persist over tighter regime on capital rules
25 April 2010
The different positions of senior officials from G20 countries suggest that a final international agreement remains a challenge. The most important fault line runs between a bloc of countries that includes the US, the UK and Switzerland and another group that includes Germany, France and Japan.
The Financial Times reports that the different positions of senior central bank and government officials from several countries of the G20 meetings in Washington suggest that a final international agreement remains a challenge.
The G20 communiqué on Friday said: "We recommitted to developing by end-2010 internationally agreed rules to improve both the quantity and quality of bank capital and to discourage excessive leverage."
But participants say little time was spent on the issue and that officials are gearing up for a battle at the next June meeting over the direction of the new standards, which will prevent banks from relying on short-term funding and disqualify some assets from counting towards core regulatory capital, the highest-quality loss-absorbing part of the capital structure.
The most important fault line runs between a bloc of countries that includes the US, the UK and Switzerland and one that includes Germany, France and Japan.
The first group is enthusiastically behind a substantial increase in capital ratios coupled with a more conservative assessment of what counts as capital, tough liquidity rules and a new simple leverage ratio.
The second group is more attached to the pre-eminence of the current risk-based approach and wants the leverage ratio to have a much less important role in governing banks' balance sheets.
Officials in the US and Europe are now starting to discuss the quantity of an uplift in ratios among themselves. Some want a dramatic increase in the minimum level of capital over risk-weighted assets - perhaps to as much as 25 per cent from 8 per cent today - to be on the table, while others want a more modest revision of capital rules.
© Financial Times
