Banks will be forced to hold enough capital to withstand another financial tsunami without calling on taxpayers for help, according to a G20 edict revealed as the summit ended yesterday.
However, they will be given leeway on implementing the tough new Tier 1 capital requirements for fear that a rapid rise in the amount of capital they hold on their balance sheets could stymie economic recovery.
In a communiqué summarising agreements made at the weekend meeting in Toronto, the G20 said: “The amount of capital will be significantly higher and the quality of capital will be significantly improved when the new reforms are fully implemented.”
More detailed information on the capital requirements, including the timetable for transition to the new system, will be revealed at the next G20 meeting in Seoul, in Korea, on November 11-12.
The Institute of International Finance said this month that banks would have to raise $700 billion (£465 billion) in new capital and sell a net $5.4 trillion in long-term debt to satisfy the requirements proposed by the Basle Committee on Banking Supervision, which is working with the G20 on the minutiae of the capital rules.
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This would slash GDP in the US, Europe and Japan by 3.1 per cent by 2015, robbing the economy of the equivalent of 9.7 million new jobs as banks curtailed lending to conserve capital, the institute warned.
The rules were originally due to be implemented by the end of 2012. But yesterday’s communiqué said that countries would be free to establish a timeframe that was “consistent with sustained recovery and limits market disruption”.
George Osborne, the Chancellor, described it as a “significant step forward” to ending the uncertainty banks faced over their financial future.
The group of world leaders also agreed that there would be no global agreement on a levy on banks to pay for the bailouts of the past two years.
The Chancellor said that he was confident that Britain’s £2 billion bank tax, announced last week, would not cause an exodus from the City. “It’s not at the level that drives businesses abroad,” he said. The Treasury is consulting on a further tax on financial transactions.
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The G20 agreed that banks should make a “fair and substantial contribution” toward paying for the governments’ efforts to rescue the financial sector. Britain will tax banks’ riskiest liabilities at 0.04 per cent in 2011, rising to 0.07 per cent in 2011.
Britain’s five listed banks will take a combined maximum tax hit of £1.3 billion when the tax starts next year, and £2.2 billion in 2012, according to analysis by Deutsche Bank. But the sums are reduced to £929 million in 2011 and £1.1 billion in 2012 when a planned series of cuts in corporation tax is taken into account.
Germany and France have said they will bring in bank taxes and the US plans two levies, one of as much as $117 billion over 10 years to pay for the Wall Street bailout and another $19 billion-a-year charge to pay for financial sector reform.
• Financial companies are more anxious about the outlook for stock markets than they have been for 18 months, with almost a quarter believing that there is a “high likelihood” of further deterioration.
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Fears about regulatory overload and competition contributed heavily to the pessimistic view, according to the latest survey by PwC and the CBI. There was also anxiety that the problems of Greece, Portugal and Spain will worsen.
Banks in particular expressed fears about regulation. Some in the sector have said privately that they became more cautious about lending in the past three months amid a renewed sense of economic uncertainty. The Government remains keen that the banks should lend more. However, banks expect business volumes to rise in the next three months, according to the survey.
There was relief that the levy announced in the Budget was not worse and banks will also be helped by cuts in corporation tax, which will reduce by 1 per cent a year to 2015, bringing it to 24 per cent.
Britain’s five listed banks will collectively have to pay a maximum of £1.3 billion next year, when the levy comes into effect, and £2.2 billion in 2012, according to Deutsche Bank. That will fall to £929 million in 2011 and £1.1 billion in 2012 when the cuts in corporation tax is taken into account.
(Katherine Griffiths)