New bank cash ratio 'to be set at 7%'



UK banks already hold a sufficiently higher level of "good" assets


Central bank governors and senior regulators are to impose tighter restrictions on the level of assets banks must hold, the BBC has learnt.
In future, they will need a "tier one capital ratio" of at least 7%, meaning they must have $7 in their vaults for every $100 in customers' accounts.
The current requirement is just 2% in reserves and the new figure is designed to protect the world's banks in future.
The new rules were drawn up by the Basel Committee on Banking Supervision.
[Only registered and activated users can see links. ]
They are expected to be approved by the governors and senior regulators when they meet in Switzerland on Sunday, BBC business editor Robert Peston says.
It will then still need to be ratified by the head of government of the G20 group of nations at their summit in November.
Low levels of capital relative to assets were a major factor in the recent banking crisis.
Then, in 2008, both Northern Rock and Royal Bank of Scotland had dangerously small amounts as backup.
The tier one capital ratio is made up of equity and retained earnings.
The new requirement should prove little problem for UK banks, as it is in fact lower than the 8-9% ratio currently held by them.


It is also well below the 10% level that was being pushed for by the UK, the US and Switzerland.
But our business editor says there was stiff resistance to the 7% rate from some quarters, led by Germany, many of whose banks typically have much lower stocks of core capital in the form of equity and retained earnings.
He says many will have great difficulty in meeting the new standard.
The updated "Basel" rules - named after the Swiss city where the central bankers meet - will mean some banks will need to raise a lot more money from shareholders to hold against possible losses on their loans.
The rules may have the effect of limiting lending, at least in the short-term, as most banks - particularly those in Europe - have far too little capital.


[Only registered and activated users can see links. ]