Central bank governors reached agreement Saturday on measures to help reduce the "moral hazard" of major financial institutions, including raising loss absorbency requirements, a statement said.
The measures relating to so-called global systematically important banks will strengthen their resilience "and create strong incentives for them to reduce their systemic importance over time," the statement issued by the Bank for International Settlements said.
"The additional loss absorbency requirements are to be met with a progressive Common Equity Tier 1 (CET1) capital requirement ranging from 1% to 2.5%, depending on a bankâs systemic importance," the statement said.
"To provide a disincentive for banks facing the highest charge to increase materially their global systemic importance in the future, an additional 1% surcharge would be applied in such circumstances."
The measures were formulated by the Group of Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision (BCBS), the statement said.
"The GHOS is submitting this consultative document to the Financial Stability Board (FSB), which is coordinating the overall set of measures to reduce the moral hazard posed by global systemically important financial institutions.
"This package of measures will be issued for consultation around the end of July 2011."
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