Regulators agree tougher bank rules

BASEL, Switzerland, Sep 12 (Reuters) --
Global regulators and central bank governors have reached a deal on Basel III, a sweeping reform that will force banks to hold more capital to withstand financial shocks, a source close to the process said on Sunday.

"There is a deal," the source said, without elaborating.

Agreement was reached at a meeting of central bank governors and top supervisors from 27 countries chaired by European Central Bank President Jean-Claude Trichet.

A formal, more complete announcement is expected after 1600 GMT. (5:00 p.m. BST)

Most details of Basel III were agreed in July, leaving Sunday's meeting to add the final two pieces in the jigsaw -- how much extra capital will be required and how long banks have to comply.

In the wake of the global financial crisis, which was partly due to risky trading by banks, leaders of the Group of 20 leading countries called on regulators and central bankers in 2009 to work on tougher bank capital rules.

The G20 leaders are set to endorse Sunday's deal when they meet in Seoul in November, with the new rules taking effect from 2013 in stages.

Analysts, regulators and bankers expected Sunday's meeting to agree that banks will need to have a minimum, core "Tier 1" capital ratio of somewhere between 7 and 9 percent of their risk-bearing assets, including a "capital conservation buffer."

Tier 1 refers to a bank's basic capital reserve, which it uses to absorb shocks; the core level was pegged at 2 percent under existing rules, too little to withstand the worst financial crisis since the Great Depression.

The new rules are likely to include a minimum core Tier 1 ratio of 4.5 to 6 percent, with an additional capital conservation buffer of 2 to 3 percent. Any bank that fails to keep above that buffer would have to curb payouts such as bonuses and dividends.

There has been strenuous debate over how long banks should have to comply with the tougher rules; the final package is expected to include a transition period of about five to 10 years.

The world's top banks, having to a large degree recovered from the financial crisis, are not expected to need to rush to raise funds. But there remain worries that banks in some countries face a long road to recovery and that the changes will cut the amount of money which banks can lend out to companies.

Sources told Reuters on Friday that Deutsche Bank, Germany's biggest bank, might raise up to 9 billion euros (7.5 billion pounds) to bolster its balance sheet.

Regulators say they are confident that the new Basel capital rules will increase the stability of the financial system without hurting the volume of lending.