BASEL, Switzerland — Global financial regulators yesterday agreed on rules designed to strengthen bank finances and rein in excessive risk-taking.
Banks will be forced to hold more and safer kinds of capital to offset the risks they take lending money and trading securities, which should make them more resistant to financial shocks such as those of the past several years.
The European Central Bank’s president, Jean-Claude Trichet, called the agreement “a fundamental strengthening of global capital standards.’’
“Their contribution to long-term financial stability and growth will be substantial,’’ he said.
US officials, including Federal Reserve chairman Ben Bernanke, called the new standards a “significant step forward in reducing the incidence and severity of future financial crises.’’
Some banks have protested that the rules may hurt their profits and cause them to reduce the lending that fuels economic growth.
Earlier this year, the European Banking Federation said new rules forcing banks to put aside more capital could keep the eurozone economy in or close to recession through 2014.
The rules, agreed on by representatives of major central banks, have to be presented to leaders of the Group of 20 nations at a meeting in November and ratified by national governments to take effect.
The agreement, known as Basel III, is seen as a cornerstone of the global financial programs proposed by governments following the credit crunch and subsequent economic downturn caused by risky banking practices.
Under the pact, banks will have six years, starting Jan. 1, 2013, to increase capital reserves. Currently, banks have to hold back at least 4 percent of their balance sheet to cover risks. Starting in 2013, this reserve — known as tier 1 capital — will rise to 4.5 percent, reaching 6 percent in 2019.
Banks will also be required to keep an emergency reserve of 2.5 percent. Total rock-solid reserves each bank is expected to have by the end of the decade will be 8.5 percent of the balance sheet.
Countries will also be able to demand that banks build up a further reserves during good times amounting to up to 2.5 percent of common equity. This “countercyclical buffer’’ is to help avoid excessive lending during an economic boom.
A 3 percent leverage ratio is designed to prevent banks from overstretching. Leverage, or borrowing to invest elsewhere, boosts returns but can backfire if an investment declines.
Regulators will continue working on additional rules for banks that could bring down entire economies if they fail.