Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

After listening to me natter on endlessly about the new Basel III capital requirements, I suppose you’ve all been waiting on the edge of your seats to see what the final agreement would be. Well, it arrived today. Here’s the nickel summary:

  • The most important part of the agreement covers “core” Tier 1 equity. For all practical purposes, you can think of this as real capital that can’t be monkeyed around with too much by clever accountants — in other words, it mostly means cash and government bonds that are firmly held by the bank. The old standard was 2%. The new standard is 7% (4.5% plus a 2.5% “conservation buffer”). In addition, during times of credit expansion, it goes up to 9.5%, and “systemically important” banks (i.e., really big banks) are expected to have even more. So figure that big banks will be required to carry core capital of about 11% or so when the economy is strong. That’s a 5x increase over the old requirement.
  • Likewise, ordinary Tier 1 capital requirements will also increase. When you add everything up, the requirement for big banks during economic booms goes up from 4% to about 12%.
  • The whole thing will be phased in between 2013 and 2018.

I think you could make a good argument for even higher requirements than this, but this isn’t bad. The new emphasis on core equity is welcome, as is the requirement for higher capital cushions in good times. This latter is something that can probably be gamed a bit depending on how lenient national regulators are, but it’s a good idea anyway. The whole idea of minimum capital requirements is that it’s something you should build up in good times in recognition of the fact that you’re going to burn through some of it in bad times. As long as regulators don’t define “bad times” too softly, it’s a good idea.

The BIS press release also announced that a new liquidity coverage ratio and a revised net stable funding ratio will move toward minimum standards in 2018, but it didn’t provide any details about exactly what the new standards would be.

Tim Geithner has said all along that he thought stronger capital requirements were the most important part of financial reform, and hopefully that means he’ll be aggressive about pushing U.S. regulators to adopt the new standards. The United States never did adopt the Basel II standards, though it did independently adopt some of Basel II’s worst aspects, including the ones that allowed banks to count some forms of contingent capital as Tier 1 capital. That turned out not to be quite as safe as everyone thought, which is why the Basel III emphasis on core equity is so important. Now it’s implementation time.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate