Global central bankers agreed over the weekend to slap higher capital requirements on the world's biggest banks. The new requirements, if approved would force banks to hold between 1 and 3.5 percent more of Tier 1 capital by 2019. Tier 1 capital is the core capital of a bank consisting of common equity, retained earnings and some types of preferred equity.
The new requirements are on top of the 7 percent banks already have to hold as part of the new Basel III rules , and come at a time when investors are growing increasingly alarmed about banks' exposure to Greek sovereign debt and credit default swaps (CDS).
Regulators hope the new rules will force banks to take less risks, reducing the chances for massive government bailouts like the one in 2008. But critics argue that the world's biggest banks will be forced to raise hundreds of billions of dollars in additional capital as a result, dramatically shrinking their balance sheets at a time when growth is already slowing.
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