Banks need plenty of capital

Talk of excess capital among banks in Australia, and methods of returning this notional excess, such as share buybacks, sits uneasily with the continuing tenor of the worldwide debate over banks and capital, with those setting the rules (governments and bank regulators) near enough to unanimous that the sector needs plenty more of it.

Finance ministers and central bankers from the Group of 20 nations, at talks in London over the weekend, reiterated the need for additional capital across the banking sector (though these sentiments did not distinguish between markets where bank capital is weak, such as in the United States, and in Australia, where it is much stronger).

Banks will also have to produce what are being called "living wills", or plans for the transfer of their business and even liquidation, as a scheme promoted in Britain wins wider support.

 "Our objective is to reach agreement by the end of next year on a new standard that will raise capital and liquidity requirements and dampen rather than amplify future credit and asset price bubbles," Tim Geithner, the US Treasury secretary said in a media briefing following the talks.

The Financial Stability Board, a panel coordinated by the Bank for International Settlements, will formalise the detail of these plans.

Banks in the US will also have to adopt some version of the Basel II rules on bank capital. Almost all banks in the US managed to avoid this revised standard, adopted in Europe and parts of Asia, including Australia, in recent years.