G-20 talking of 16% to 20% capital adequacy ratio for banks

15/09/2014 09:19 AST

TOKYO -- The G-20 is working to raise capital adequacy requirements on banks in the hope of preventing taxpayers from having to bail out any institution that might otherwise go bankrupt.

The group of 20 major economies is discussing whether to double the minimum capital-to-asset ratio, to 16% to 20%. The Financial Stability Board, which is joined by financial watchdogs across the world, next week will enter final talks on an interim report to be presented to G-20 finance ministers and central bank governors when they meet Sept. 20-21. An official agreement is expected to be reached at the G-20 summit in Australia in November. Implementation likely would not come before 2019.

Under consideration is a requirement for banks to hold more subordinated bonds in line with a bail-in clause. This would make investors bear losses in cases of effective bankruptcy. The intention is to give investors an incentive to help a zombie bank get on its feet before a government bailout is extended.

Details on raising the minimum amount of capital banks are required to keep on hand are to be finalized later. Any change could affect bond markets and bank lending.

Japan's three megabanks currently maintain capital ratios from 15% to more than 16%. An increase of 1 percentage point would require that a bank keep about an extra 1 trillion yen ($9.3 billion) on hand. If the minimum ratio is set at 20%, the three would need to set aside a combined 10 trillion yen or so.

Asian Nikkei