By Huw Jones
LONDON (Reuters) - Some of the world's biggest banks will have to set aside a combined $77 billion in extra capital from 2019 under new trading book rules unveiled on Thursday by global regulators hoping to prevent another financial crisis.
In the latest sign of how regulators are being more accommodative as policymakers emphasise the need to help economies grow, the Basel Committee of banking supervisors has eased its initial proposal for a hike in capital requirements.
Banks had warned that overly burdensome demands would make trading uneconomic, crimp lending and thin already stressed liquidity in markets.
Basel did not name the banks likely to be affected, but major U.S. trading firms such as JP Morgan as well as European players such as Deutsche Bank are likely to be in the frame.
Policymakers hope that publication of the rules will give clarity on the final, post-crisis regulatory picture for banks so they can forge sustainable businesses.
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While the new rules won't represent a huge overall hike in capital requirements, they could dampen ambitions to expand trading. Some lenders are already scaling back on trading activities.
Under its final, long-awaited rules on how much capital banks must hold in case stocks, bonds and other markets turn sour as they did in 2007-09, Basel has raised the trading book assets of a bank's total risk-weighted assets to around 10 percent from 2019 from about 6 percent.
Each percentage point difference is equivalent to less than 20 billion euros in extra capital, and an impact study by Basel study shows that for most lenders there will be little change, if any, in capital requirements.
The bulk of the 70 billion euros in extra capital requirements will fall on just a handful of big trading banks, though they are unlikely to need fresh capital as they typically hold far more than the overall minimum needed.
JPMorgan's Chief Financial Officer, Marianne Lake, told analysts on a conference call on Thursday that the final rules mark the start of a race to understand the changes and make necessary adjustments.
The rules are exceptionally complex and earlier drafts and proposals varied too much for the bank to spend a lot of time and money preparing for different outcomes, Lake said.
Under the new rules, the amount of capital needed against non-securitised assets, which make up the bulk of trading books and include shares, foreign exchange, swaps and commodities, will rise by a median of 27 percent, Basel said.
For securitised or pooled debt, the capital increase will be a more modest 22 percent as far heftier hikes were introduced in the immediate aftermath of the financial crisis in a quick-fix known as Basel 2.5.
The International Swaps and Derivatives Association welcomed "a more consistent and coherent market risk framework," but it is too early to comment on the overall capital impact, said Mark Gheerbrant, head of risk and capital for the group, in a statement.
"We note, however, that even the Basel Committee's own estimate of a 40 percent average increase in total market risk capital requirements would impose a considerable burden on banks on top of the increases already introduced following the crisis, as part of Basel 2.5," he added.
The association put out a statement with two other major trade groups, the Global Financial Markets Association and the Institute of International Finance, saying, "we worry that the rules may have a negative effect on banks' capital markets activities and reduce market liquidity."
A core aim of the rules is to end incentives for banks to shift assets between their banking and trading books to exploit variations in capital charges. Regulators also want more consistent capital calculations.
Larger banks use their own models for calculating capital, which typically lead to lower requirements than under the standard method set out by regulators and used by the vast majority of lenders.
The new rules will still allow the use of models but within a much stricter framework, with the vetting of models by supervisors toughened up.
Approval for models will also be made more granular, with regulators able to stop their use at individual trading desk level at banks.
Banks that use models will also have to run the same calculations using the "standard" approach to act as a capital floor, irrespective of what models come up with.
Draft versions of the rules sparked accusations from banks of a Basel IV in the making, meaning a step change in capital requirements on top of Basel III, the world's core regulatory response to the financial crisis.
Central banks have dismissed this and the Basel Committee said on Thursday the changes it has to earlier drafts of the new rules "have led to an overall reduction in the capital impact".
($1 = 0.9144 euro)
(Additional reporting by David Henry in New York and Lisa Lambert in Washington; editing by Alexander Smith, David Gregorio and Chizu Nomiyama)