G20 agrees to banking reform

28 June 2010

A meeting of leaders from the G20 nations has resulted in an agreement on global banking reform.

Under the proposed measures, banks will be forced to hold more tier one capital in the form of equity, with the intention of ensuring that shareholders absorb more losses from any financial difficulties rather than costs being passed on to the taxpayer in the form of bailouts.

The measures are set to be finalized at the next G20 meeting – which is to be held in South Korea in November.

While the US and the UK were pushing for the reform to be in place by the end of 2012, countries such as Germany, Spain and France have successfully negotiated a phase-in period for the regulations lasting up to six years, reports the Guardian.

British sources told the newspaper that its government is not opposed to the new length of the transition period, explaining that the "tough new standards" will not be easy for banks to meet immediately and an attempt to push through the measures too quickly could impact on lending.

In a statement following the agreement, the G20 said banks will be required to hold "significantly higher" amounts of capital which will be of a "significantly improved" quality on current levels.

"These will enable banks to withstand - without extraordinary government support - stresses of a magnitude associated with the recent financial crisis," it added.

The statement noted that G20 leaders believe that the global financial system has already been strengthened since the start of the crisis, with improvements to risk management and banks forced to behave with greater transparency.

But it added that "more work is required" to further improve the regulation of the financial sector.

The comminuque explained that commitments made at previous G20 summits will be honored "by the agreed or accelerated timeframes".

By Tony Aynsley

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development