Global banking rules designed to prevent a repeat of the 2008 financial crisis have finally been agreed after a year-long deadlock.
The breakthrough was reached at a meeting of international financial regulators in Frankfurt today and updates the world’s financial rulebook, known as Basel III.
The changes aim to prevent big banks "gaming" the system by using their own risk calculations to justify holding less capital, which regulators fear make them more likely to collapse in a downturn.
It is also hoped the changes will boost competition by helping smaller banks, which typically have to hold proportionally more capital under the old system.
However big banks won a major concession by delaying the rules kicking in by three years to 2022. They will then have another five years to implement the changes, taking them up to 2027 – almost two decades on from the crash.
“When the next crisis will be is hard to foresee. But the present system is much more resilient than the one we saw before the crisis,” said Mario Draghi, the European Central Bank (ECB) president who also chairs the supervisory board of the Basel Committee on Banking Supervision that devised the rules.
France and Germany had until recently stalled progress in the talks as they feared lenders in the two countries would be disproportionately affected, but assented after the rules were watered down.
The key new rule is a so-called "output floor" preventing banks from risk weighting an asset at less than 72.5pc of the level calculated by regulators under standardised models.
Lenders who have a lot of mortgages on their books – which they judge to be lower risk than regulators calculate are set to be most affected by the changes.
But the low output floor level could open the Basel Committee up to accusations it has been too lenient. Mr Draghi admitted at a press conference this afternoon there had been disagreement among national regulators about whether to set the output floor higher or lower.
But Wiliam Coen, a fellow member of the Basel Committee, said he was satisfied the rules would make the financial system safer by “reducing variability” and catching out “outliers”.
Simon Hills, director of prudential at City lobby group UK Finance, commented: “This will go a long way to levelling the playing field between big and small banks.”
Paul Lynam, chief executive of UK challenger bank Secure Trust, welcomed the changes. “The very significant changes announced will, over time, dramatically reduce the capital advantages enjoyed by the systemic banks relative to the smaller banks,” he said.