Global banking regulators have published more details on the pending changes to bank capital requirement, and they have released the results of a quantitative impact study for the new regime.

The Basel Committee on Banking Supervision issued the Basel III rules text Thursday, which provides the details of global regulatory standards on capital adequacy and liquidity agreed by the governors and heads of supervision, and endorsed by the G20 leaders at their latest summit in Seoul. The framework sets out requirements for higher, and better-quality, capital; better risk coverage; the introduction of a leverage ratio; measures to promote the build up of capital that can be drawn down in periods of stress; and, the introduction of two global liquidity standards.

The impact study released by the committee also reveals how far banks have to go to meet the new standards. New York-based research firm, CreditSights Inc., says that “the scariest” estimate is the 602 billion euros ($799 billion) that it’s estimated global banks need to raise to meet a minimum 7% core equity Tier 1, including a 2.5% conservation buffer.

It projects that banks should be able to make up the shortfall through internal capital generation in three years or less, assuming 2009 earnings levels and no dividend payments. “However, a key question would be the distribution of these future earnings across banks that already have a capital surplus and those with a shortfall,” it notes.

Also, these estimates assume that the full final provisions of the framework are applied immediately, without any transition period, and they don’t account for any mitigating action that can be taken by bank management. Indeed, the Basel Committee does provide for a long implementation period.

Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank, described the Basel III Framework as, “a landmark achievement that will help protect financial stability and promote sustainable economic growth. The higher levels of capital, combined with a global liquidity framework, will significantly reduce the probability and severity of banking crises in the future.”

He added that the new standards “will gradually raise the level of high-quality capital in the banking system, increase liquidity buffers and reduce unstable funding structures.” And, he said the transition period provides banks with “ample time” to move to the new standards.

The Committee also issued guidance for national authorities on the operation of a countercyclical capital buffer, and it is continuing to work on issues concerning systemic banks and contingent capital.

IE