Global banks cut shortfall in reserves required

THE largest global banks cut the shortfall in the reserves they will need to meet Basel capital rules by ¤82.9bn in the second half of last year, leaving a gap of ¤115bn.

“Shortfalls in the risk-based capital of large internationally active banks continue to shrink,” the Basel committee on banking supervision said in a statement on its website. The capital gap narrowed about 42% at the end of last year compared with the middle of last year. The requirements, known as Basel 3, are scheduled to fully phase in by 2019.

Lenders also needed to do further work to meet a planned binding limit on bank indebtedness, known as a leverage ratio, the Basel group said. A quarter of large global banks failed to meet the standard, it said.

Global regulators have clashed with lenders over the severity of capital, indebtedness and liquidity rules, which were set out in 2010 as part of an overhaul of banking regulation to avoid a repeat of the financial crisis following the collapse of Lehman Brothers in the US. The Basel 3 measures will more than triple the core capital that lenders must hold to at least 7% of their assets, weighted for risk.

The biggest lenders in Europe account for ¤70.4bn of the capital shortfall at the end of last year identified by the Basel committee, the European Banking Authority said in a separate statement yesterday. They boosted their capital levels by ¤29bn from June last year.

Banks can plug gaps in capital by either boosting their reserves or by reducing their assets weighted for risk. Both the European Union and the US missed a January 2013 deadline to begin phasing in the Basel standards on capital, and have said they will start the process from next year.

A sample of 222 banks surveyed by the Basel committee, including 101 large international lenders, had a combined shortfall of ¤563bn in the easyto-sell assets needed to meet one of the Basel liquidity rules, the group said. The liquidity coverage ratio is also set to fully apply from 2019.

The sample of banks also had a ¤2trillion shortfall in the stable funding needed to meet a separate Basel requirement for banks to back longterm lending with funds that are unlikely to dry up in a crisis. This measure, known as a net-stable funding ratio, is under review by the Basel committee.