Regulators agree to rein in lending risks

BASEL, Switzerland — Global financial regulators on Sunday agreed on new banking rules designed to rein in the excessive risk blamed for triggering the credit crunch and subsequent economic crisis, an official said.

Limousines park outside the building of the Bank for International Settlements

Limousines park outside the building of the Bank for International Settlements

BASEL, Switzerland — Global financial regulators on Sunday agreed on new banking rules designed to rein in the excessive risk blamed for triggering the credit crunch and subsequent economic crisis, an official said.

Banks will be forced to hold more and safer kinds of capital to offset the risks they take lending money and trading securities, which should make them more resistant to financial shocks such as those of the last several years.

Some banks have protested that the new rules may hurt their profitability and cause them to reduce the lending that fuels economic growth, possibly dampening a global economic recovery.

An official familiar with the talks says representatives of major central banks agreed to the deal at a meeting in Basel, Switzerland, on Sunday.

The official spoke on condition of anonymity because the deal had yet to be officially announced.

The agreement, known as the Basel III rules, is seen as a cornerstone of the global financial reforms proposed by governments following the credit crunch and subsequent economic downturn caused by risky banking practices.

Details were due to be released later Sunday. The deal still has to be ratified by national governments before it comes into force.

Earlier this year the Brussels-based European Banking Federation warned that the new global rules forcing banks to put aside more capital could keep the eurozone economy in or close to recession through 2014.

The federation said its analysis of proposed new Basel III banking standards would limit eurozone banks’ credit growth and profits, hurt the economy and prevent the creation of up to 5 million jobs in the 16 nations that use the euro.

Already one bank has cited the new rules as a reason for its plans to tap the market for billions of euros in new capital.

Earlier Sunday, Germany’s biggest bank, Deutsche Bank AG, announced plans to raise at least euro9.8 billion ($12.4 billion) in a capital increase.

The planned issue of 308.6 million new common shares is meant primarily to cover the consolidation of Postbank, “but will also support the existing capital base to accommodate regulatory changes and business growth,” Deutsche Bank said. It did not elaborate.