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Global banking checks to begin early 2012

08 January 2012, 21:48 CET
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(GENEVA) - Checks of banks in the European Union, Japan and the United States are to beginning early in 2012 to see if they have put the globally agreed Basel rules into practice, central bank governors said Sunday.

The Group of Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision (BCBS), announced the checks in a statement issued after a meeting.

The group agreed that the results of the tests would be made public, the statement added.

"The focus on implementation represents a significant new direction for the Basel Committee," said Mervyn King, GHOS chairman and governor of the Bank of England.

"The level of scrutiny and transparency applied to the manner in which countries implement the rules ... will help ensure full, timely and consistent implementation of the international minimum requirements," he added.

The "Basel II" capital rules for the world's biggest banks are designed to prevent a repeat of the 2008-2009 financial crisis when governments were forced to bail out banks, by requiring them to boost their capital.

The checks would start in the first quarter of the year, said the GHOS statement.

Sunday's GHOS meeting also discussed how to implement the next set of rules, known as "Basel III" reforms, which have come in for criticism from the banking sector.

The Basel III rules require all banks to strengthen their capital reserves by raising total core reserves to 7.0 percent from 2.0 percent at the moment.

In addition, regulators decided in 2011 to impose additional rules on the world's biggest banks, asking them to hold 1.0 percent to 2.5 percent more in core reserves, on top of the 7.0 percent required for all banks.

Some bankers have raised fears that the new capital rules will hit profits since they will force the lenders to hold more money in reserve rather than put it to work.

"The Committee's rigorous peer review process is a clear signal that effective implementation of the Basel standards is a top priority," said Stefan Ingves, chairman of the Basel Committee and governor of Sweden's Riksbank.

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