Basel Offers Capital Clarity, But Punts on Key Details

By Donna Borak

Although the Basel Committee on Banking Supervision provided clarity on new international capital standards this weekend, the panel left some crucial questions unanswered, including how it plans to calculate certain requirements for the most systemically risky institutions. The board of governors and heads of supervision, which oversee the Basel Committee, outlined a plan that would effectively raise common equity standards to 7% by 2019, but made it clear it is weighing extra requirements for the largest banks. Although it said it planned to use a combination of “capital surcharges, contingent capital and bail-in debt,” the panel provided little to no guidance on how it will do so. “I know what the rules say, but putting all of these pieces into a coherent, finished rule on which strategic planning is based remains difficult,” said Karen Shaw Petrou, a partner at Federal Financial Analytics Inc. “The basic accord with the tangible and core capital and the relationship with Tier 2 are very clear. But the relationship of the basic framework to the countercyclical buffer, the loss-absorption charge and the systemic charge — let alone proposals for contingent and ‘bail-in’ capital — is at best uncertain.”

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