FRANKFURT, Germany (AP) — A global forum of banking regulators has finished its years-long work on rules that aim to keep weak banks from needing taxpayer bailouts and setting off financial crises like the one that led to the Great Recession.
The oversight board of the Basel Committee on Banking Supervision agreed on the last batch of rules at a meeting Thursday in Frankfurt, Germany.
A key part of the debate on the rules is how far banks should be allowed to diverge from regulators’ assessments of how risky their holdings are.
European Central Bank head Mario Draghi, who heads the Basel Committee’s oversight board, said Thursday that the step was “a major milestone that will make the capital framework more robust.”
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The package “completes the global reform of the regulatory framework, which began following the onset of the financial crisis,” he said.
The Basel committee rules have been an ongoing international response to the 2007-2009 financial crisis that saw the bankruptcy of U.S. investment bank Lehman Brothers and taxpayer bailouts of big banks. The financial crisis was the prelude to the Great Recession that saw many people lose their jobs and homes. Governments in the United States, Europe and elsewhere were pushed to rescue banks to prevent a cutoff of credit to businesses that would further harm the economy and increase unemployment.
The new rules, dubbed Basel III, toughen an earlier set of rules and take effect from 2022. The idea is create a level playing field for banks globally and prevent troubles from spreading through the financial system.
The first set of Basel III rules were published in 2010 and implemented gradually. The rules increased the amount of capital banks had to hold as a financial buffer, as measured against the risks they had taken by extending loans like mortgages. Such capital ratios, as they are called, have been…