By Huw Jones
LONDON (Reuters) - Global regulators meeting on Tuesday look set to finalize tougher bank capital rules roughly in line with expectations but the package may take effect sooner than anticipated, raising investor concerns over dividends.
Germany's Die Zeit newspaper reported on Monday evening it had obtained a draft of the finalized package showing that banks will have to hold Tier 1 capital of 9 percent, including a 3 percent so-called "conservation buffer."
At least 5 percent of Tier 1 would have to be in the form of pure equity or retained earnings for maximum market shock absorbency. The current Tier 1 ratio minimum is 4 percent, with a core pure equity minimum of 2 percent.
The leak sparked some skittishness in Europe's stock market as investors refocused on how much capital banks may need to raise and how this might hit dividend payments.
The STOXX Europe banks index was down 1.5 percent at 1232 GMT (8:32 a.m. EDT) while the broader market was off 0.7 percent.
The Basel Committee on Banking Supervision meeting in Switzerland is finalizing a package of "Basel III" reforms aimed at forcing banks to hold enough capital so that state rescues of lenders in the next crisis is less likely.
ONEROUS END
The committee of central bankers and supervisory officials from nearly 30 countries aims to agree new higher levels of capital requirements and how long banks will have to meet them.
A spokeswoman for the committee said it was unclear if there will be any announcements on Tuesday.
Germany continued to press for more time for its banks on so they don't have to raise huge amounts of capital quickly.
"We want a tightening of the rules... (but) the financial sector must be in a position to continue to carry out its business," German Finance Minister, Wolfgang Schaeuble said.
Analysts and regulators have been expecting the new levels under Basel III to come in at around 6 percent for core Tier 1, with a conservation buffer of at least 2 percent.
Andrew Lim, an analyst at Matrix Group said the minimum ratios outlined in the newspaper leak were at the more onerous end of what the market had been expecting once the additional buffers are added.
"This, we believe, is incrementally negative and is one of the reasons why the market is weak today," Lim added.
"Our analysis shows that BBVA, HSBC, Intesa Sanpaolo, Unicredit and Barclays would still be at risk of being in the conservation buffer even by year-end 2013," Lim said.
Any bank that failed to keep above the capital conservation buffer would have to restrict payouts such as bonuses, dividends and share buybacks.
Banking and regulatory sources confirmed the Die Zeit figures but said it was unclear if the figures were final and cautioned that debate over phase-in periods was continuing.
"If the new core minimum is 5 or 6 percent then that looks good. A majority of European banks would be definitely above that level," said Antonio Ramirez of Keefe, Bruyette & Woods.
"Obviously there would be a group of banks below that level but for the system overall, that looks like a very affordable level," Ramirez said.
2013 DEADLINE
Analysts said much of the impact will hinge on what quality capital banks will be expected to hold in their conservation and "countercyclical" capital buffers that will sit on top of minimum core levels.
The newspaper leak signaled that the new capital rules would take effect in 2013, sooner than the market was expecting.
The Group of 20 leading countries that had called on Basel to come up with tougher standards, agreed earlier this year that its original end of 2012 deadline should include wiggle room for countries to have more time to comply.
Sticking to 2013 would signal a tough stance by regulators after the Basel Committee came in for criticism in July when it diluted other elements of Basel III by delaying a new leverage ratio and some of the tougher liquidity rules.
European bankers meet in Frankfurt this week to discuss their response to the tougher regulation now looming.
The Basel Committee's oversight body is due to sign off on the finalized package next Sunday paving the way for the G20 summit of leaders in November to give their seal of approval.
(Additional reporting by Alexander Huebner and Angelika Gruber in Frankfurt and Noriyuki Hirata in Tokyo; Editing by Mike Nesbit)
