Accounting chief wants higher bank capital ratios

By @ibtimes on

New bank capital rules should be about 30 percent higher than agreed, to prevent a repeat of the last financial crisis, the incoming head of the world's biggest accounting standard setter said on Sunday.

The Basel III bank capital rules will force banks to more than triple the amount of top quality capital they must hold to 7 percent by 2018 to withstand shocks without resorting to state aid.

But Hans Hoogervorst, who takes over on July 1 as chair of the International Accounting Standards Board (IASB), told Dutch TV program Buitenhof that still wasn't high enough, implying the actual requirement should be as much as about 9 percent.

In countries which have been hit hard, such as Switzerland and Britain, the supervisors are saying 'We don't want to run into that trap again', Hoogervorst said.

I think it will (need to) be a factor of 30 percent higher than what the international agreement is. I cannot make precise statements but I think it can be a notch higher.

IASB has no direct say about bank capital rules, which are set by the Basel Committee, an international body of central bankers.

Hoogervorst, who currently heads the Dutch financial market regulator AFM, said he was also worried about so-called too-big-to-fail banks -- as those banks whose collapse would threaten the financial system are often described.

I am still very worried about this. Banks have become bigger rather than smaller. The too big to fail problem has become bigger, Hoogervorst said.

We have to acknowledge this. In countries such as France and Germany as well as the Netherlands we should not try to just meet the capital requirements but surpass them greatly.

Hoogervorst said he expected a new European stress test for banks, which looks at how well banks can cope with economic and financial shocks, to lead to new capital raisings, as also predicted by analysts.

Some banks will be forced to raise capital. That is a good thing.

Germany's Commerzbank AG and Italy's Intesa Sanpaolo this week already unveiled plans to raise capital.

In February, Hoogervorst criticized last year's bank stress tests because they failed to reflect the decline in prices for euro zone peripheral sovereign debt.

He said that the new bank stress test was an improvement, because of the higher capital requirement, but there still was not a scenario for writing down peripheral euro zone sovereign debt.

What they do want to do is detail the exposure of banks to these kind of countries. Then market participants can do the maths themselves.

The IASB has emerged as a powerful, global lawmaking body. Its standards are used in over 100 countries -- they are mandatory for the 8,000 listed companies in the European Union but are not used in the United States.

Hoogervorst said he hoped to reach an agreement with the United States whereby it would adopt IASB accounting rules and create a global standard, as called for by the Group of 20 leading countries.

(Reporting by Gilbert Kreijger; Editing by Sara Webb and Jon Loades-Carter)

Join the Discussion