Party Over: Basel Group Puts Safety First
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On Sunday, the Basel Group reached agreement on a controversial new set of banking requirements that will put an end to the heady days when financial institutions could take huge gambles using investors’ cash. The new rules, called Basel III, will ultimately require that banks raise their Tier 1 capital, the kind of funds most important to have in the event of disaster, from 2% to 7%. These higher capital requirements will go a long way towards reining in the risk-taking that fueled the financial collapse of 2007 and 2008.
Not all the news was good for investors, however, as banks have been given until 2019 to reach the 7% level. The new Basel requirements will also force banks to set aside extra cash in times of growth as a buffer for financial crises—a “countercyclical buffer.” These changes will go a long way to helping stem the volatility in the financial sector that has had investors spooked.
