Tags: Basel | Disclosure | Rules | Banks

Basel Outlines Capital Disclosure Rules for Banks

Monday, 19 Dec 2011 11:57 AM

Banks across the world will have to use a common format for disclosing the size and quality of their capital safety buffers from 2013 to help reassure investors they are stable.

The Basel Committee on Banking Supervision, made up of regulators from nearly 30 countries, including the United States, China, Japan and large European Union countries, published draft disclosure templates on Monday for public consultation.

In the run-up to the financial crisis, it was hard for regulators and investors to compare capital buffers of banks.

"It is often suggested that lack of clarity on the quality of capital contributed to uncertainty during the financial crisis," the Swiss-based Basel Committee said in a statement.

"Furthermore, the interventions carried out by the authorities may have been more effective if capital positions of the banks were more transparent," the committee said.

The requirement to fully disclose details of capital buffers was enshrined in the Basel III accord which will force banks to hold more capital and liquidity from 2013.

Banks will have to comply with disclosure rules from the date of publication of their first set of financial statements on or after Jan. 1, 2013.

They will be required to publish updated data each time they publish financial statements, which for big banks is typically on a quarterly basis.

Lenders would also have to update disclosures whenever a new capital instrument is issued and included in capital buffers.

The Basel III accord will require banks to hold at least 7 percent of core Tier 1 capital in the form of retained earnings or pure equity.

Regulators and markets have already forced banks to hold well above the planned minimum that is not due to take full effect until the start of 2019.

Banks are already disclosing their capital levels in a bid to reassure jittery investors. The committee in conjunction with global insurance and securities markets regulators also published a report on stricter supervision of conglomerates such as big cross-border firms that have banking, insurance and securities operations.

"In hindsight, the crisis exposed situations in which regulatory requirements and oversight did not fully capture all the activities of financial conglomerates or fully consider the impact and cost that these activities may pose to the financial system," the regulators said in a joint statement.

The existing supervisory framework needed updating to provide greater focus on off balance sheet special purpose entities, corporate governance, and the detection and correction of multiple uses of capital or double and multiple gearing.

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