Daily Archives: September 13, 2010

John Gapper

The Basel III deal imposing higher capital standards on banks is an improvement on the existing rules but it does have a quality of déjà vu.

The FT expresses the main new rule thus:

The package, known as Basel III, sets a new key capital ratio of 4.5 per cent, more than double the current 2 per cent level, plus a new buffer of a further 2.5 per cent. Banks whose capital falls within the buffer zone will face restrictions on paying dividends and discretionary bonuses, so the rule sets an effective floor of 7 per cent.

It sounds good but is awfully reminiscent of the original Basel accord, which established the 4 percent minimum level of tier 1 capital in 1988. This time, the numerator is not tier 1 capital but “core tier 1 capital” – a narrower version of the same thing. Read more