Basel III, which is expected to fill some of the gaps left by Basel II, should lead to stronger and more stable banks. But not all banks will reap the same benefits.

Following the meltdown in global finances and the subsequent collapse of many banks and financial institutions in western economies, financial authorities and regulators are reacting with customary zeal to make sure such a disaster does not happen again.

Regulators from around the world met on September 12, in Basel, to reach an agreement on the new banking rules aimed at preventing another financial crisis. The Committee has agreed to increase the minimum common equity (common shares plus retained earnings) requirement from 2% to 4.5%. In addition, banks will be required to hold a capital buffer of 2.5% to withstand future periods of stress, bringing the total common equity requirements to 7%. A countercyclical buffer is also proposed within a range of 0%-2.5% of common equity or other fully loss absorbing capital, which will be implemented according to national circumstances. The minimum common equity and Tier 1 requirements will be phased in between January 1, 2013 and January 1, 2015. Negotiators want to hammer out most of the details so that they can deliver a package that the leaders of the Group of 20 largest industrialized nations can bless at a summit in South Korea in November.

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