Loans and Finance

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Monday, September 13, 2010

Bank Capital Base Deal Reached

A deal has been reached in Basel this weekend, between 27 "heads of supervision" of the world's banks, as to the capital base requirements of banks.

It has been decided that, in order to reduce the risks of future banking failures, banks will be required to more than double their reserves (common equity and retained earnings) from a minimum of 2% to 4.5%.

Additionally, banks will be required to build up an extra buffer that will take their total capital reserves to 7%.

This of course means that banks will have less money to lend, hence those trying to borrow money will find it harder to obtain a loan at an affordable rate.

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