BCBS Chairman on the regulatory reform: raising minimum capital will raise the stability of the system and promote more sustainable growth
21 June 2010
Nout Wellink, BCBS Chairman, urged banks to use the “return to profitability to boost capital and liquidity buffers” through earnings retention and reasonable capital raising. He noted that raising minimum capital requirements will involve large and permanent net benefits.
Basel Committee on Banking Supervision Chairman Nout Wellink gave a speech on the Basel Committee and its role in regulatory reform in which he urged banks to use their “return to profitability to boost capital and liquidity buffers” through earnings retention and reasonable capital raising. He noted that “when it comes to the long term costs, the impact is not clear. On the one hand, higher capital requirements and liquidity standards could increase the cost of funding. On the other hand, more stable, less leveraged banks would raise average ratings, improve the terms on which banks could raise funds, and lower the required return on equity.”
He highlighted that one thing however is clear that raising minimum capital requirements from their current levels will involve large and permanent net benefits by raising the stability of the system and promoting more sustainable growth. Moreover, these benefits accrue immediately for every additional dollar (or Euro) of capital and liquidity. This is critical in an overall economic and financial environment of continued uncertainty and risk.
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