Basel Plan Aims to Force Banks to Increase Capital
16 September 2010
PrThe Federal Reserve in Washington is the United States' central bank. International bank supervisors want banks to increase their capital reserves for a rainy day
This is the VOA Special English Economics Report.
The financial crisis of two thousand eight brought attention to a big problem with banks. Many banks did not have enough money in reserve to protect against their losses. Now there is a proposed solution.
On Sunday, banking supervisors from twenty-six nations and Hong Kong met in Basel, Switzerland. They announced proposals to make banks safer by requiring them to increase their reserves.
The Basel Committee on Banking Supervision has been working on a set of recommendations known as Basel Three. These are based on agreements reached in July by officials from a group of leading industrial nations.
The goal is to stop the cycle of easing rules on banks in good times and tightening them only after a crisis.
Under the new rules, banks would have to hold reserves equal to seven percent of their risk-weighted assets. Mainly this means loans. Currently banks are required to hold two percent in reserve.
The bigger reserves could be in the form of cash or common stock, also known as common equity. Banks would also have to hold extra reserves as their national economies improve.
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