Top regulators meet to agree tougher bank rules

BASEL, Switzerland (Reuters) - Central bank governors and heads of supervision from 27 countries were expected on Sunday to agree tougher new bank capital rules, the world's core response to the financial crisis.

The so-called Basel III reform is aimed at ensuring banks hold enough capital to withstand shocks and avoid a repeat of governments having to bail out undercapitalized lenders.

The group of central bank governors and top supervisors, chaired by European Central Bank President Jean-Claude Trichet, were expected to approve the final elements of Basel III, central bankers said last week.

The finer details of Basel III were agreed in July, leaving Sunday's meeting to add the final two pieces in the jigsaw -- how much extra capital will be required and how long banks have to comply.

A statement is expected after 12:00 p.m. EST (1600 GMT), a spokeswoman for the meeting said.

Leaders of the Group of 20 leading countries called on regulators and central bankers in 2009 to work on tougher bank capital rules.

The G20 leaders are set to endorse Sunday's anticipated deal when they meet in Seoul in November with the new rules taking effect from 2013 in stages.

Analysts, regulators and bankers expect Sunday's meeting to agree that banks will need to have a minimum core Tier 1 capital ratio of 7 to 9 percent, including a capital conservation buffer.

Tier 1 refers to a bank's basic buffer for absorbing shocks and the core level was pegged at 2 percent under existing rules, too little to withstand the worst financial crisis since the Great Depression.

The new buffer would include a minimum base core Tier 1 capital ratio of 4.5 to 6 percent and an additional capital conservation buffer of 2 to 3 percent. Any bank that fails to keep above the buffer would have to curb payouts such as bonuses and dividends.

There is some debate over how long banks should have to comply with the tougher rules but the final packages is expected to agree on a timespan of about five to 10 years.

Top banks are not expected to rush to raise funds, although there remain worries that banks in some countries face a long road to recovery and the changes will crimp lending.

Yet regulators are confident that the new Basel capital rules will improve financial system stability without hurting lending.

(Writing by Huw Jones; Editing by David Holmes)

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