Stock market indexes rose around the globe today as the world’s bankers gathered to recommend rules that would effectively triple the amount of capital that private banks must hold in reserve.
The new rules, which still must be ratified by the G20 nations, are aimed at strengthening banks’ balance sheets in case of another global financial crisis.
But it is also expected to crimp the banks’ profits. Indeed, the positive stock market reaction globally seemed fueled by relief that the reserve rules weren’t made more stringent, as well as by a new report showing China’s industrial production in August was up 13.9 percent over a year ago.
Near the end of its trading day, Japan’s Nikkei index was up 0.9 percent, as was China’s Shanghai Composite index. At midday, Britain’s FTSE was up 1.1 percent, France’s CAC index had climbed 1.2 percent, and Germany’s DAX index had risen 0.9 percent.
U.S. stock futures also pointed to a positive opening this morning.
Under the new rules, banks would be required to raise their reserves from 2 percent of their capital to 4.5 percent, with an additional buffer that effectively brings the level to 7 percent by the beginning of 2019.
Government officials in the United States, which already has a 4 percent minimum reserve requirement, had pushed for tougher requirements and a shorter time frame. But in a statement, they praised the final compromise as a “significant step forward in reducing the incidence and severity of future financial crises.” Jean-Claude Trichet, president of the European Central Bank, called it “a fundamental strengthening of global capital standards.”
The new rules must be ratified by the G20 as a whole, probably later this fall, and then by the individual nations. The agreement calls for the rules to be phased in, beginning in 2013.