New global rules require tougher bank capital requirements

A new set of tougher international standards on bank capital requirements have been finalized as part of efforts to prevent banks' bad loans from posing a threat to the financial system, South Korea's financial regulator said Tuesday.

The Financial Services Commission (FSC) said it will implement the new capital rules for domestic systemically important banks (D-SIBs) from 2016 after a preparation period, including necessary law changes.

The rules include definitive grounds by which the local regulator will pick banks subject to stiffer capital requirements, known as the Basel III.

Under the new provisions, the local regulatory body can include certain criteria it thinks are necessary for the selection of D-SIBs, such as the country's gross domestic product, in addition to the initial rules set by the Basel Committee on Banking Supervision (BCBS), the FSC said.

If a local bank has a subsidiary based overseas, its local regulator must examine both on a consolidated basis, while the watchdog in the other country looks into the subsidiary only.

The new rules on D-SIBs came after the BCBS announced the selecting guidelines for global systemically important banks (G-SIBs) in November last year. The stricter regulations came as calls for stricter capital requirements grew to prevent financial fallout from excessive leveraging or as such.

Under the Basel III, a D-SIB is required to secure additional common equity capital like common stocks or retained earnings that are non-redeemable except in cases of liquidation.

The FSC will have the authority to determine the amount of the required capital for a D-SIB, which differs from how G-SIBs must abide by the adequate capital level fixed by the BCBS.

Banks' required capital adequacy ratio could rise to as high as 15 percent, compared with the current 8 percent required at least as buffers against their risk-weighted assets, according to the regulator. (Yonhap)