Tokyo/Frankfurt: Global regulators will give banks a grace period before forcing them to implement stricter capital rules, three people said on Wednesday, easing concerns that lenders might need to issue massive amounts of shares in the near future.
Shares of major Japanese banks surged on the news, with Mizuho Financial Group (8411.T) and Sumitomo Mitsui Financial Group (8316.T) both gaining more than 14%.
European bank shares rose a more modest 1.3 percent (.SX7P) on relief that banks would have more time to adjust to new rules being drafted by the Basel Committee on Banking Supervision, made up of central bankers and regulators from nearly 30 countries.
The committee is expected to publish proposals this week for stricter financial regulations in response to the credit crisis, and there had been fears that if banks had to implement the new rules quickly, they would have to raise substantial capital.
The three people with knowledge of the matter said the committee would stick to its plan to gradually implement changes starting in 2012, but will give banks a transition period to help them adjust to the rules.
Regulators do not plan to set a specific time frame for the transition period, said the people, who were not authorized to speak publicly on the matter. Japan's Nikkei newspaper said it would be at least 10 years.
The Basel II regulatory changes introduced in 2004 came with 10-year transition periods for some requirements.
Goldman Sachs has estimated that Mizuho, Japan's second-largest bank by assets, and third-ranked Sumitomo Mitsui would need to raise a combined 2.7 trillion yen ($30 billion) to meet the coming global standard for capital levels.
"This means there's no reason to rush into financing," said Mitsushige Akino, a chief fund manager at Ichiyoshi Investment Management.
"There was some talk that Mizuho might find it extremely hard to carry out financing, and some even thought they might have to accept public funds. So that kind of risk has diminished."
A European policymaker involved in the discussions said that there was a strong consensus on other controversial points, such as the definition of liquid assets and core capital, and that the committee would take a broader view on this than before.
Other expected changes include lifting the minimum capital ratio for global banks, requiring them to increase their buffers for future losses.
A spokesman for Japan's Financial Services Agency, Motoyuki Yufu, said no such agreement had been reached. A spokeswoman for the Bank for International Settlements, which hosts the Basel Committee secretariat, had no immediate comment.
Bureau Report
First Published: Wednesday, December 16, 2009, 19:18