G20 agrees tougher capital rules for banks

The G20 group have agreed to implement budget cutting measures and tougher capital rules for banks to prevent a repeat of the banking crisis but leaders decided that each country should determine its own plan.

At a meeting in Toronto over the weekend, world leaders and finance ministers of richer G20 countries pledged to halve budget deficits by 2013 without stunting growth. However, in a reversal of previous displays of unity the countries will determine their own ‘differentiated and tailored’ policies.

US president Barack Obama sought to play down rumours of a clash between the US and Europe about how to tackle deficits but warned: ‘No nation should assume its path to prosperity is paved with exports to America.’

Members of the group have also pledged to toughen rules around banking to prevent risky behaviour without choking lending.

Banks will have to hold more capital as a buffer. Currently banks must hold a ratio of core tier one capital to risk-weighted assets of 2%, but according to the Financial Times this figure is expected to double and could increase further.

In a statement, the G20 said: ‘The amount of capital will be significantly higher and the quality of capital will be significantly improved when the reforms are fully implemented.’

Following disagreements on what is considered a capital buffer the G20 stated the previous target of increasing capital by 2012 was now an ‘aim’.

Bank rules ‘will reflect different starting points and circumstances with initial variance around the new standards narrowing over time as countries converge,’ said the G20.

Prime minister David Cameron said: ‘While the rules must be tough, on the timing we need to be careful we don’t shrink the monetary base.’