The Basel Committee on Banking Supervision has released proposals to significantly strengthen global capital standards. The measures are designed to increase the quality, consistency, and transparency of the capital base, enhance risk coverage, reduce procyclicality, and promote countercyclical capital buffers.

Key Proposals

• Higher Minimum Capital Requirements: The proposals include a substantial increase in the minimum level of Tier 1 common equity, the highest quality component of capital.
• Stricter Definition of Capital: The definition of eligible capital will be tightened to focus on instruments that provide a greater capacity to absorb losses.
• Countercyclical Buffers: National supervisors will be empowered to implement countercyclical capital buffers to moderate the build-up of systemic risk during periods of rapid credit growth.
• Leverage Ratio: The Committee is also developing a simple, transparent, and non-risk-based leverage ratio to serve as a backstop to the risk-based capital requirements.

Impact and Implementation

The Basel Committee believes that these measures will significantly enhance the resilience of the global banking system. The proposals are subject to a period of public consultation, and the Committee intends to finalize the new rules by the end of 2009. Implementation is expected to begin in 2010, with full compliance required by 2012.

Further Considerations

The Committee recognizes that the impact of these new rules will need to be carefully assessed. It will continue to monitor the effects of the new standards on the global economy and will make adjustments as necessary.