Title:
Basel Plan Aims to Force Banks to Increase Capital
Description: This is
a VOA Special English Economics Report.
See text below
Text:
The financial crisis of two thousand eight brought
attention to a big problem with banks. Many banks
did not have enough money in reserve to protect
against their losses. Now there is a proposed
solution. In September, banking supervisors from
twenty-six nations and Hong Kong met in Basel,
Switzerland. They announced proposals to make banks
safer by requiring them to increase their reserves.
The Basel Committee on Banking Supervision has been
working on a set of recommendations known as Basel
Three. These are based on agreements reached in July
by officials from a group of leading industrial
nations. The goal is to stop the cycle of easing
rules on banks in good times and tightening them
only after a crisis. Under the new rules, banks
would have to hold reserves equal to seven percent
of their risk-weighted assets. Mainly this means
loans. Currently banks are required to hold two
percent in reserve. The bigger reserves could be in
the form of cash or common stock, also known as
common equity. Banks would also have to hold extra
reserves as their national economies improve. The
new requirements would go into effect starting in
January of two thousand thirteen. Banks would have
five years to fully meet them. International banking
lawyer Ernie Patrikis, a former vice president of
the Federal Reserve Bank of New York, explains why.
He says: "We cannot be telling banks, on the one
hand, raise capital right away, and on the other
hand, lend more." One way for banks to meet the
proposed new rules would be to sell more of their
stock. That is what Germany's Deutsche Bank did in
September. It announced a sale offer valued at over
eleven billion dollars. Ernie Patrikis thinks chief
executive officers of banks have three choices. He
says: "One is to go out and raise more common
equity. Another one is to not pay dividends. And
that is not something most CEO's want to do because
their shareholders aren't going to be particularly
happy. And the third choice is sell assets --
downsize the bank." Nations on the Basel committee
will now seek to pass the new rules into law so
their banking supervisors can enforce them.Banks
that fall below the reserve limits could have to
stop paying dividends to shareholders or bonuses to
top employees. Ending dividends would anger
shareholders. And limiting pay could send bankers
fleeing to hedge funds, where there are fewer
rules.For VOA Special English I'm Alex Villarreal.
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personally reviewed this video and found it appropriate for
the news section of English Global Group. This
is a Voice of America video which covers an interesting
topic in Special English. I would appreciate some feedback from both
students and teachers about this video. You can comment in
the window below using any of a number of different services
including Facebook, Yahoo, AOL, and Hotmail.
