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Stocks up after world banks agree to bolster reserves

media The Bank for International Settlements in Basel, Switzerland Reuters

Bank shares rose Monday despite new rules agreed by central banks in the Swiss city of Basel to prevent a repeat of the financial crisis. The regulations, called Basel III, will force banks to more than triple their current reserves.

The idea is to raise the capital base as a form of insurance against sudden strains in the system, or on any particular financial institution.

The rules will be phased in from 2013, a statement from the Bank for International Settlements said.

The move is the most high-profile response yet to chaos in the global financial system in 2007-2008 which forced governments to rescue banks, tipped many economies into recession and added to national debt in Europe and the United States.

European Central Bank chief Jean-Claude Trichet, said Basel III is a "fundamental strengthening of the global capital standards".

“The transition arrangements will enable banks to meet the new standards while supporting the economic recovery," Trichet said.

Under the new rules, banks will be required to hold more reserves by 1 January 2015, with the so-called core Tier 1 capital raised to 4.5 per cent of overall assets from the current 2 per cent.

Banks will also be required by 2019 to set aside an additional buffer of 2.5 percent to "withstand future periods of stress", bringing the total core reserves required to 7
per cent.

Regulators said this would go towards stopping banks from issuing "discretionary bonuses and high dividends, even in the face of deteriorating capital positions".

The new rules will be submitted for ratification at a meeting of Group of 20 major developed and developing nations in South Korea in November.

Bank shares rallied across Asia and Europe following the announcement.

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