Banks to Get Capital-Buffer Reprieve

By ATSUKO FUKASE And WILLIAM LAUNDER Global banking regulators agreed to relax a proposal that stricter bank-capital requirements should come into effect from the end of 2012, a person familiar with the Basel Committee negotiations said Wednesday, suggesting that banks may face less near-term pressure to strengthen their balance sheets. The person said the regulations might include a grace period for banks to meet the new rules beyond 2012 but didn't provide details. The person said the Basel proposal contained no specific time frame for a grace period. The Nikkei Business publication reported earlier Wednesday that the Basel Committee had decided to give more than 10 years for banks to implement the tougher requirements The Basel Committee on Banking Supervision, which acts as a global forum on banking oversight, is expected to begin introducing higher capital requirements at the end of 2012. A Bank for International Settlements spokeswoman said the Basel Committee will make a statement on its new requirements within the next few days. A separate person familiar with the matter said the rules could be unveiled as early as Thursday. The Basel group's likely loosening of the time frame of its regulations is seen as a reaction to the continuing weakness of the global economy. Forcing banks to rush to improve their balance sheets at a time when the economy remains sluggish could prompt the banks to cut back on lending, further weighing on private demand. A possible grace period for banks before they are required to boost regulatory capital would give lenders more time to recover from the financial crisis and pay back state aid. More time from regulators also would let banks find other ways to boost capital such as using their retained earnings instead of dilutive rights issues. Future Basel rules are expected to require that banks hold stronger portions of equity capital, which can be used as a more direct buffer against potential losses "Banks may wait [to raise capital] until the next fiscal year starts" because they would want to hold off from raising capital until the market recovers if there is no need to do so right away, said Nana Otsuki, banking analyst at UBS Securities. Regulators started discussions over tougher capital requirements in Basel, Switzerland, earlier this month, following the Group of 20 nations' agreement in September to draw them up in an effort to avoid future financial crises.