G20 may punish bank capital reform delinquents: officials

The world's biggest economies will soon discuss how to punish countries that fail to implement tougher new bank rules in a crucial test of their resolve to prevent another financial crisis, officials said.

Countries that miss the deadline for introducing new rules -- called Basel III -- could be named and shamed as the world's top policy makers try to sew up reforms to ring-fence the global economy from problems at financial institutions.

The new rules will force banks to roughly triple the size of capital buffers they hold so they don't come calling for taxpayer bailouts the next time they are in trouble. They are scheduled to be phased in over six years starting in January.

But the United States and Europe, home to most of the world's largest banks, have not yet finalized their rules, prompting speculation that the timetable may be postponed.

Juan Manuel Valle, head of banking supervision at Mexico's finance ministry, said before a meeting of Group of 20 finance chiefs that no country had suggested a delay but any that failed to meet the deadline would face pressure from their peers and could be publicly named as "non-compliant".

"The G20 is going to be put to the test. What is it going to do with countries that don't comply?" Valle told Reuters in an interview.

"For the ones that don't have regulations in place in January, the question will be, what kind of punishment will they face?" he said. "Clearly, there's going to be a lot of pressure for some measures to be taken against them."

Australian Treasurer Wayne Swan told Reuters that foot-dragging by some countries was "a matter of concern".

"It is important that we do see these rules applied in the way in which they are supposed to be applied," he said.

The Financial Stability Board, the G20's regulatory task force chaired by Bank of Canada Governor Mark Carney, will track each country's progress next year. Carney has said his preference is to "name and shame" the delinquents.

G20 policy makers will get a progress report from the FSB on steps taken so far to ensure that the world's biggest banks do not come calling for fresh taxpayer bailouts.

In addition to Basel, a deadline is also looming on the drafting of rules to reduce risks in the $650 trillion derivatives market for the end of the year.

The G20 agreed in 2009 that derivatives like interest rate swaps and credit default swaps should be traded on electronic platforms, centrally cleared and recorded.

But uncertainty over how the new rules will mesh together globally and cross-border spats has held back progress. Partial implementation in some countries only could drain liquidity from some markets, experts say.

The FSB is due to release a report at the G20 outlining each member countries' commitment on how they will perform central clearing, which could reduce some of that uncertainty.

BASEL TIMETABLE SLIPPAGE?

Two years after the G20 agreed on Basel III rules, they have come under withering criticism by U.S. and British regulators as overly complex while banks say they will crimp lending and further delay economic recovery.

With Europe still in crisis, some officials acknowledge that the schedule might be too ambitious.

Valle said he would be flexible if he were in charge, conceding that the Basel timeline may have been "exaggerated."

Jose Angel Gurria, head of the head of the Organization for Economic Co-operation and Development agreed that the slump in bank loans had eased concerns over timely implementation.

"People are saying well this is too important to stick to a decision that we took no matter what because the circumstances under which we took that decision have change," he said on Saturday, noting the decline in lending.

Under the rules, all banks will have to hold a capital buffer of at least 7 percent. But G20 leaders have already agreed that the world's top banks - including Goldman Sachs and Deutsche Bank - should face more intensive scrutiny and hold higher levels of core capital.

European banks are farther from the target than their U.S. counterparts. Banks in France and Germany, the two biggest euro zone countries, have ratios of top quality capital to risk-weighted assets of more than 11 percent but others have much lower ratios, according to the International Monetary Fund. The ratio in the U.S. stands at 13.4 percent.

"We can concede that (American banks) aren't ready on an administrative level, but if they (the rules) are ready tomorrow, the banks can comply the day after tomorrow. That is not the case in Europe," Valle said.

(Additional reporting by Huw Jones; Editing by Krista Hughes and Chizu Nomiyama)