Central banks agree Basel III rules

The new regulations, agreed in the Swiss city of Basel, will require banks to hold more capital in relation to their loan books, in an attempt to prevent a future financial crisis.

Banks will be required to hold capital equivalent to approximately 7% of their loans and investments, up from 2% currently. Those failing to stick to the rules could be prevented from paying dividends to shareholders.

Some banks say the new requirements could create a second credit crunch, but regulators are confident this can be prevented by phasing in the requirements over several years.

However, many banks will need to raise substantial sums from shareholders to meet the new capital regulations.

The regulations will need to be ratified by the G20 before coming into force.

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