Bank capital deal takes shape despite impasse says Basel head

An outline deal on how much capital banks must hold to avoid a repeat of the financial crisis has taken shape, a top regulator said on Wednesday, despite the failure of negotiators at a two-day meeting to reach agreement on global standards. The European Union had threatened to boycott the proposed rules unless they are diluted and agreeing a deal is seen as a litmus test for a global post-crisis regulatory consensus.
This is showing signs of fraying after a welter of rulemaking, but Stefan Ingves, chairman of the Basel Committee of banking regulators from nearly 30 countries, said "very good" progress was made on an outline deal during a meeting in Chile, which ended on Tuesday.
Basel has set itself an end-of-year deadline for a deal on measures which have been challenged by the EU and Japan who say that the proposed rules would bump up capital requirements too much and risk disturbing the flow of credit to the economy. Meanwhile, US president-elect Donald Trump has said he will scrap Dodd Frank, America's main reform of Wall Street, which includes many globally-written rules. Basel's original proposals unleashed a major lobbying campaign by banks, later backed by European policymakers and the meeting in Chile failed to reach a final deal.
That means the pressure is now on to iron out differences in time for Basel's oversight body of central bank governors and heads of supervision (GHOS) to endorse a package in January. The aim of the package is to end wide differences in how much capital banks across the world set aside to cover similar risks. This would be done by curbing flexibility in computer models big banks use to tot up risks on their books.
A controversial part of the package is an "output floor" for capital, below which a bank could not go, irrespective of what their models say is the right amount. "I expect an aggregate floor will be part of our package of reforms," Ingves said in speech delivered in Chile on Wednesday. But the final configuration of the floor is, however, subject to the endorsement of GHOS - an indication of how the most controversial parts of the package will need to be brokered by the committee's political masters.