On the one hand it includes a minimum of 4

Bankers around the world have retained their breath yesterday. Late afternoon, regulators 27 banking of the Basel Committee members reached an agreement on the future solvency ratio. It will apply to all banks gradually from 2013. It should strengthen the capitalization of the banks so they are again appeal to States in crisis.

The solvency ratio defines the level of capital that banks need to cover possible losses of their assets. Regulators have decided yesterday to the ratio of 2, 7 from 2013, even if the composition of the ratio is not quite comparable.

For the banking sector, the issue is of importance. This ratio determines the amount of capital that banks will have to lift the markets over the next two years to strengthen their creditworthiness, reduce the famous "leverage effect" and to comply with the new regulations in effect. He also mechanically reduce profitability, since it is measured by the profits to the own funds.

The recovery noted yesterday is located in the low range expectations of markets, which projected a ratio between 7 and 9. In recent months banks have argued that a too high ratio would threaten credit production and more generally the financing of the economy in Europe. "Found agreement today represents a fundamental strengthening capital standards", nevertheless found Jean-Claude Trichet, President of the European Central Bank.

Prevent excess

From the technical point of view, the future ratio of 7 breaks down into two parts. On the one hand, it includes a minimum of 4.5 of "hard" own funds, established actions and the result set reserve, and which is comparable to the 2 in force today. This part of the ratio should be in place between 2013 and 2015. The other part consists of a cushion of safety, "conservation", set at 2.5 and also consisting of shares and reserves after any deductions. If the level of own funds under the cushion, the regulator may impose restrictions on the bank concerned payment of the dividend and executive compensation. This cushion will be introduced between 2016 and 2019.

A second said own funds mattress "counter-cyclical" is also added and spreads in a range from 0 to 2.5, at the discretion of the local regulator. Market expectations were around 3. Banks will have to be this mattress in a period of growth. It is intended to prevent the excesses in credit granting.

The regulators found that institutions with systemic risk should go beyond these standards and said work on a more stringent level of solvency requirements for these last.

Implementation of standards

That the implementation of the standards is not restrictions of credit by banks, and to allow them to raise funds in a timely manner accompanied, the Basel Committee has established transitional periods. Therefore, the ratios will be applied gradually between 2013 and 2019. The declination of the standards in local law shall nevertheless be completed by January 1, 2013.

Facilities have also been planned so that banks can use equity capital provided by the States during the crisis, this decreasing way to early 2018. And the instruments more entering in the composition of the "hard" own funds will still be taken into account under certain conditions. The Committee further clarified the schedule that will apply to liquidity ratios.

The agreement signed last night must be the bedrock of the discussions which will take place at the g-20 in Seoul in November for financial regulation.