Bank heads thrash out Basle III regulations

Top banking officials from 27 countries are locked in talks today in the Swiss town of Basle finalising new, tougher, global capital rules which could force banks to raise fresh equity.

As the second anniversary of the Lehmans Brothers collapse looms, governors and heads of supervision are trying to create a universal standard – "Basle III" – laying down how much capital, and what type, banks must hold to provide adequate protection in the event of another liquidity crisis.

There is only speculation to what the final ratios will be. Analysts expect a minimum "tier one" requirement of between 4 and 6 per cent, up from the current 2 per cent. A new additional "capital conservation buffer" of between 2 and 3 per cent is likely. Banks falling below the combined buffer would have to curb bonuses and dividends. There could also be a third "counter cyclical buffer" requiring banks to increase capital bases during profitable times if supervisors see excess credit in the economy.

The possible impact was already rippling through Europe last week as Deutsche Bank reportedly began plans to raise up to €9bn of equity. Germany's 10 biggest banks may need €105bn under the new rules.

The Liberal Democrat treasury affairs spokesman, Lord Oakeshott, said: "We will need robust thinking to reduce systemic risk in the banking sector and tackle unacceptable bank bonuses."

Richard Barfield, a PricewaterhouseCoopers' director, said: "It's important to remember that 1 per cent Core Tier 1 capital under Basle III 'new money' is more expensive than 1 per cent 'old money' under Basle II, because of the tighter definition of what is allowable as capital."

Any decisions have to be ratified at November's G20 before they are phased in from 2013.