The G20 has agreed to give banks more time to adopt tougher global rules in a concession that the body tasked with coordinating reforms said would both safeguard the recovery and ultimately lead to stronger banks.
Leaders from the top 20 industrialized and emerging powers agreed last year to introduce new bank rules by the end of 2012 as a core effort to prevent a repeat of the worst financial crisis in more than 80 years.
At a summit in Toronto on Sunday, the Group of 20 endorsed a flexible timeline for building up higher levels of capital and liquidity, giving some breathing room to banks that say they are still struggling after the global recession.
A delay is better than diluting the new rules to meet the original deadline, the Financial Stability Board (FSB), the body overseeing reform, said.
We'll make sure that this new regulation and the pace of implementation is not going to cause either market disruption or hamper the recovery in any way, FSB Chairman Mario Draghi told reporters in Toronto.
It marks a victory for intense lobbying by banks and countries such as Japan, Germany and France that say the shift to stricter rules by 2012 would have imposed huge capital-raising burdens on banks and jeopardize lending and economic recovery.
However, the chief executive of Deutsche Bank warned that too much variance in the timelines could lead to an uneven playing field for banks.
If you don't have a coordinated approach to regulatory (systems)... then there's the risk of regulatory arbitrage, CEO Josef Ackermann told Reuters.
The FSB also signaled that the days of credit rating agencies sparking big market moves may be numbered and called for more resources to extend its global reach.
NEXT STOP IS SEOUL
The G20's final communique reflected advice Draghi had given the group before the summit. We recommend that implementation of these new standards begins in 2012, with a transition horizon informed by the macroeconomic impact assessment now underway, he wrote in a letter.
The G20 also said phase-in arrangements would reflect different national circumstances, but that countries would converge over time to a common global standard.
Details of the transition timeline and on the new capital rules will be ready for the G20 November summit in Seoul.
Some may be able to reach standards very quickly and some other countries will need the full transition period, said FSB Secretary General Svein Andresen.
While conceding on the deadline, the G20 showed little appetite for compromise on the capital levels that would eventually be required, signaling they would be significantly higher and adequate for withstanding a crisis of the magnitude just experienced.
It keeps the level of ambition as far as calibration of capital, and the definition of capital, pretty high, Draghi said.
The process for raising capital levels, called Basel III, toughens up the definition of core capital so that banks can quickly absorb market shocks without having to go cap in hand to taxpayers again.
The G20 laid to rest any plans to introduce a common tax on banks to shield taxpayers from paying for another bailout -- an approach favored by Germany and its EU partners.
Some countries are pursuing a financial levy. Other countries are pursuing different approaches, the summit's communique said tersely.
Canada, along with Japan, Brazil and Australia, had balked at piling a tax on their banks, which required no bailouts during the financial crisis. Any tax now introduced in Germany, France and Britain will have to be modest or else risk banks shifting operations to more tax-friendly locations.
(Writing by Huw Jones; Editing by Peter Cooney and Peter Galloway)