U.S. banking regulators back tougher regulation standards

The U.S. Federal Reserve and other banking agencies said on Sunday that they support the endeavor to strengthen the capital position of large banks, in a bid to discourage excessive leverage and risk taking.

"The U.S. federal banking agencies actively supported the efforts of the the Group of Governors and Heads of Supervision (GHOS) and the Basel Committee on Banking Supervision (Basel Committee) to increase the quality, quantity, and international consistency of capital and to strengthen liquidity standards," the Federal Reserve announced in a joint statement.

The agreement reached at the Sept. 12 meeting of the GHOS, in combination with the agreement reached at the July 26 meeting of GHOS this year, "sets the stage for key regulatory changes to strengthen the capital and liquidity" of globally active banking agencies in the United States and around the world, according to the statement.

The Basel Committee's package of reforms will increase the minimum common equity requirement from 2 percent to 4.5 percent. In addition, banks will be required to hold a "capital conservation buffer" of 2.5 percent to withstand future periods of stress.

The agreement, known as "Basel III", will force banks to set aside more capital to cushion the possible financial turmoil.

"Today's agreement represents a significant strengthening in prudential standards for large and internationally active banks," said the Federal Reserve.

The GHOS announced that the new numerical minimum requirements would be phased in over two years beginning on Jan. 1, 2013, and that certain capital deductions and the phase-in of capital buffers would occur over time from Jan. 1, 2014, to no later than Jan. 1, 2019.

This transition period is designed to give banking institutions the opportunity to implement the new prudential standards gradually. The GHOS is the oversight body of the Basel Committee.

Source: Xinhua