March 12, 2009
Basel Committee: More, Better Capitalization Coming to Your Banks ... in Two Years
Posted by David Zaring

The Basel Committee of rich country bank supervisors isn't particularly scrutable, but sometimes it releases a couple of paragraphs on the latest momentous change it is planning for the banking industry.  So it was today.  To no one's surprise, the committee has announced that it will be increasing capital requirements on banks above the current Basel II levels in the wake of the current unpleasantness.  But it will be waiting to do these lending restrictive things until times are better.  The interesting thing is how - or, at least, how broadly.  It's basically a shoot the village approach: banks will have to keep more capital on hand, risk weighting of current capital will change, and the committee is turning away from the approach where banks use their internal models to discern how much capital they need to something that sounds like an alternative minimum tax:

This will be achieved by a combination of measures such as introducing standards to promote the build up of capital buffers that can be drawn down in periods of stress, strengthening the quality of bank capital, improving the risk coverage of the capital framework and introducing a non-risk based supplementary measure.

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