G20 agreement will contribute to stable recovery1

The G20 decision to link increases in bank capital to economic growth strikes the right balance between reform and recovery, the British Bankers' Association said today.

The statement issued by world leaders after their Toronto meeting recognises the work already undertaken by some countries to build bank capital reserves at a measured pace to preserve economic growth, but does not set difficult obligations on others still struggling to achieve recovery, said BBA chief executive Angela Knight.

"This decision looks a sensible compromise. Banks' capital holdings have increased significantly in the UK since the credit crunch began, and the banks agree that the new proposals will increase stability further. The big question has been one of the timeframe: the more capital the banks are holding, the greater the limit on what they can lend. The G20 statement clearly recognises, as we all do, that the new measures be phased in over a time frame which safeguards economic recovery and the ability of markets to provide funding to individuals and business customers.

"We agree with the G20 that a great deal has been accomplished on the road to regulatory reform. There is an enormous amount of detailed work being undertaken in the BBA and elsewhere to determine what the future capital regime should look like, and how best to balance the need to deliver to individuals and businesses a guarantee of greater bank stability while also providing them with the funds they need. It is critical to get this detail right.

"We welcome the G20 leaders' pragmatic approach, and pledge to work with their authorities to deliver a more robust and reliable banking system for the future."

A number of recent economic analyses have shown that the proposed global changes to bank capital due in 2012 (known as Basel III) will have a significant impact on the economies of most countries.

Writing before the G20 summit, the BBA chairman Stephen Green wrote to the prime minister urging the UK to press for globally coordinated reform, to get the detail right and to avoid arbitrary implementation targets.

Notes to Editors

Please find via the link below Stephen Green's letter to the Prime Minister before the weekend summit.

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