Page last updated at 06:20 GMT, Monday, 7 September 2009 07:20 UK

Central banks back new regulation

ECB President Jean-Claude Trichet
ECB President Jean-Claude Trichet presided over the Basel meeting

Central bankers have backed new measures to strengthen supervision of the global banking industry.

A meeting of the Bank for International Settlements (BIS), which consists of the world's central banks, pledged to increase bank's capital requirements.

The plans should "substantially reduce the probability and severity of economic and financial stress," the BIS said.

But the BIS did not set out a timeline for implementation of the proposals.

The measures will be outlined in detail by year-end and be introduced in a way "that does not impede the recovery of the real economy".

The BIS meeting comes just after the finance ministers from the Group of 20 richest nations meeting in London backed a system that rewards long-term performance rather than short-term risk-taking.

But they could not agree on specific limits on the amounts individual bankers get paid.

Tier one

The BIS, established in 1930 in the aftermath of the Great Depression, consists of 55 member central banks and is based in Basel.

The meeting, on Sunday, was held by members of the Basel Committee on Banking Supervision.

"The agreements reached today among 27 major countries of the world are essential as they set the new standards for banking regulation and supervision at the global level," said Jean-Claude Trichet, the head of the European Central Bank chief who presided the meeting.

In addition to holding on to more capital, the BIS agreed to boost the standards for so-called "tier one" capital requirements - which essentially means the quality of the assets that banks have on their books in relation to their deposits.

Basel Committee head Nout Wellink, also the president of the Dutch central bank, also said that banker compensation should be "properly aligned with long-term performance and prudent risk-taking."

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