By Gilbert Kreijger and Steve Slater
AMSTERDAM/LONDON (Reuters) - New bank capital rules agreed by global regulators brought relief to the world's banks on Monday although one of the architects said the sector would eventually have to raise hundreds of billions of euros.
The new requirements, known as Basel III, will demand banks hold top-quality capital totaling 7 percent of their risk-bearing assets, but a long lead-in time eased fears that lenders will have to rush to raise capital.
Europe is the most likely region for banks to need to raise funds, notable in Germany, Spain and other weak spots.
The new capital ratio represents a substantial increase from the current requirement of 2 percent, but is significantly lower than what banks had feared earlier this year and comes with a phase-in period extending in part to January 2019.
The framework could free strong banks with excess cash to return some to investors or look at acquisitions, analysts and investors said, although there remains the threat that larger international banks face a capital surcharge.
"It will be hundreds of billions (of euros)," European Central Bank Governing Council member and head of the Basel Committee on Banking Supervision Nout Wellink said of total capital-raising needs.
"Partly they will have to retain profit for years which they cannot use to pay shareholders or bonuses. For another part, this will vary from bank to bank, they will have to get it from the capital market," Wellink, who heads the Dutch central bank, told Dutch NOS Radio 1 Journaal.
European bank shares rose 2 percent and the euro jumped 1 percent versus the dollar as the prospect of a rush to raise cash receded.
Banks will not be required to meet the minimum core tier one capital requirement, which consists of shares and retained earnings worth at least 4.5 percent of assets, until 2015. An additional 2.5 percent "capital conservation buffer" will not need to be in place until 2019.
"The message is that authorities have agreed and realized they need to let the banks recover first and start to lend to participate in the recovery," said Guy de Blonay, who co-runs fund manager Jupiter's 1.4 billion pound ($2.2 billion) Financial Opportunities Fund.
Top German lender Deutsche Bank is seeking a headstart on rivals such as Commerzbank by announcing plans to raise almost 10 billion euros to bolster its capital. It said it would meet the Basel III rules by the end of 2013.
Credit Suisse analysts said they would now regard 7 percent as the bare minimum for core Tier 1 capital, 8 percent as the market standard for adequately capitalized banks and 10 percent as the level at which surplus capital could be identified and potentially returned to investors.
Banks in Asia also rose, including Japan, whose banks have some of the lowest capital levels in the region.
Analysts at Macquarie estimate Japanese banks have on average a common equity ratio of 6.3 percent, just shy of the 7 percent requirement, suggesting little need to raise capital.
"It's no big bang for banks, not with a phase-in arrangement of five years," said Commonwealth Securities analyst Craig James.
TIME ON THEIR SIDE
When regulators issued an initial consultation document last year the new rules were expected to come into force by the end of 2012, but banks urged delay, citing worries that a speedy introduction would hit a fragile economic recovery.
The long implementation period raised questions about whether heavy lobbying and economic recovery reduced regulators' resolve following the deepest financial crisis in decades.
Banks that will benefit from the longer transition period for the new rules were among the top gainers in Europe, with France's Credit Agricole up over 5 percent and Italy's Banco Popolare up 4 percent.
Most banks in Asia, outside Japan, have capital levels well above the minimum levels under Basel III. So do many top banks in the United States and Canada, the Nordic and Benelux regions, Britain and Switzerland.
Clarity on the Basel rules could see them become bolder in reinstating or raising dividends or seeking acquisitions.
"If management can be confident on the capital position, it will allow them to be a bit more flexible on growth opportunities," Jupiter's de Blonay said.
But there remains uncertainty over whether extra measures will be imposed on systemically important banks.
The Financial Stability Board, will make recommendations by November on options for tackling the "too big to fail" problem. Sunday's Basel statement said this could include "combinations of capital surcharges, contingent capital and bail-in debt."
There will also be an additional counter-cyclical capital buffer of up to 2.5 percent, which national regulators will apply during periods of excess credit growth.
The Basel III agreement was reached in Switzerland by central bank governors and top supervisors from 27 countries, after a year of horse-trading and lobbying that involved banks and governments seeking to protect their national interests.
Along with the capital standards, Basel III includes a range of reforms agreed earlier this year to reduce risk-taking by banks, including rules on how liquid banks' assets must be and how banks must treat tax assets on their books. Some changes were watered down in July after strenuous lobbying by banks.
Leaders of the Group of 20 rich and big emerging economies blamed the global credit crisis partly on risky trading by banks and demanded tougher bank capital rules. They are set to endorse Sunday's deal when they meet in Seoul in November.
(Additional reporting by Rachel Armstrong, Lionel Laurent, Ian Simpson, Narayanan Somasundaram, Denny Thomas, Ben Lim, Aileen Wang and Taiga Uranaka; Editing by Mike Peacock)
