G20 SUMMIT: Basel Committee to draw up new regulations on bank capitalization and liquidity

• Banks required to double their equity for riskiest operations

Banks will be required to increase their equity for the riskiest operations more than two times, by the end of 2010, according to the agreement of the G20 leaders at the end of the Pittsburg summit (September 24th to 25th).

Even though G20 leaders have not come to an agreement on minimum liquidity and capitalization requirements, they have agreed that the new rules will be drawn up by the Basel Bank Surveillance Committee by the end of 2009. G20 is thus looking to strengthen the global banking system, in order to make it less dependent on governmental capital injections, in the event of a new financial crisis.

G20 attendants said that banks should preserve their current profits, in order to meet the new capitalization requirements, specifically by limiting dividend payments, share buybacks and compensation packages.

On the subject of liquidity, G20 members agreed that the Basel Committee should elaborate a set of rules on a minimum global liquidity standard.

This will ensure that banks are able to continue providing financing, in the event of a new financial crisis.

• A cap on banking bonuses

G20 leaders agreed on capping banker bonuses.

G20 participants promised payments for bank employees would be limited to a percentage of total net revenues, subject to the solidity of the bank"s equity.

After posting over USD 1,600 billion in losses and write-downs, banks were advised to avoid guaranteed multi-annual bonuses, and to postpone awarding major variable compensations subject to company performance.

"We will not go back to the payment of bonuses based on the results of short term speculations, instead of on the long term success of companies", British Prime Minister Gordon Brown said.

G20 leaders also agreed to avoid prematurely phasing out the stimulus packages, before the onset of a sound economic recovery.