Do the world’s biggest banks need stricter capital requirements to strengthen their viability, discourage risky behavior and reduce the chances of another financial market meltdown?
The question may seem far from most banking customers’ lives, but it’s not an academic exercise. In fact, the call for more and better capital is so clear that the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of Comptroller of the Currency have all agreed to support new international banking agreements to achieve that aim.
The most recent agreement, according to a joint press release, "represents a significant step forward in reducing the incidence and severity of future financial crises, providing for a more stable banking system that is less prone to excessive risk-taking, and better able to absorb losses while continuing to perform its essential function of providing credit to creditworthy households and businesses."
That sounds big -- and it might be, but not anytime soon. The changes are slated to happen not this year, not next year and not the year after next year, but starting in 2013 and dragging on until full implementation "no later than" Jan. 1, 2019 -- nine years and three months from now.
Banks naturally claim, as they always do, that the changes will cut their profits and increase borrowers’ costs of financing. Officials, regulators and analysts say that’s a reasonable trade-off to strengthen the global financial system.
For the record, the new accords were reached through the work of the Basel Committee on Banking Supervision and at a meeting of the G-10 Governors and Heads of Supervision. The usual acronym, "GHOS," just begs for a T to be tacked on at the end, doesn’t it?
Readers who want more information might want to check out these articles:
"Regulators Back New Rules to Avert Crises," New York Times
"Basel Regulators to Bolster Bank Capital Requirements," Bloomberg
"Banks Get New Restraints," The Wall Street Journal