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Basel Committee agrees new capital requirements rules

The Basel Committee on Banking Standards has agreed new rules governing capital requirements for financial institutions.

Under the changes, the minimum common equity requirement will be increased to seven per cent, which is to include a "capital conservation buffer" of 2.5 per cent.

The new rules will be introduced at the end of 2011 and will apply to organizations involved with trading, derivative and securitization activities.

Jean-Claude Trichet, president of the European Central Bank, said the tougher standards will have a "substantial" effect on the long-term financial stability of the banking sector.

"The transition arrangements will enable banks to meet the new standards while supporting the economic recovery," he stated.

National implementations of the rules have to be arranged by January 1st 2013, with countries required to include the standards in their laws prior to this date.

The regulations have been welcomed by the US Federal Reserve, which said the legislation should help bring about a more stable banking system.

By Gary Cooper