The Group of 20 leaders say banks must set aside more and higher quality capital by the end of 2012, a draft summit communique showed today, as governments seek to minimise the need for bailouts in future.
The new capital rules would be phased in as financial conditions improve and economic recovery is assured, the communique said.
Work on rules had already begun but the G20 leaders have also set an end of 2010 deadline for thrashing out the exact figures for higher capital levels, the text said.
The summit will also adopt a deadline for converging accounting rules by mid 2011 to cut costs for multinational companies. It will crack down on off-exchange traded derivatives by the end of 2012, and has reached a compromise over a new leverage cap for banks.
Banks welcomed the details on capital.
"Clarity on the timetable is good and what we are now looking for is clarity on the numbers. It's a good start," a spokeswoman for the British Bankers' Association said.
Some banks have expressed concern that quick implementation of tighter, new rules could prevent them from lending even as governments press them to support economic recovery.
"We call on banks to retain a greater proportion of current profits to build capital, where needed, to support lending," the draft communique said.
The statement said cooperation among the world's largest economies would ensure regulatory reform.
"If we all act together, financial institutions will have stricter rules for risk taking, governance that aligns compensation with long-term performance, and greater transparency in their operations," the statement said.
The leaders' statement showed agreement on the importance of reforming pay practices at banks.
"Reforming compensation policies and practices is an essential part of our effort to increase financial stability," it said.
Some European governments, notably France, have pushed for strict new curbs on bonuses in the financial sector. But the United States was opposed to the idea of fixed limits on bonuses.
The communique said banks should hold on to a larger part of their profits to support lending where necessary.
Leaders also backed ideas such as clawing back pay in the event of poor performance, paying some bonuses in stock and limiting bonuses as a percentage of revenues in cases of banks with low capital, the draft said.
The G20 statement blamed poor regulation and oversight for contributing to the financial crisis. It said stronger capital standards and clear incentives to mitigate "excessive risk-taking practices" had to be at the core of the reform.
"Major failures of regulation and supervision, plus reckless and irresponsible risk taking by banks and other financial institutions, created dangerous financial fragilities that contributed significantly to the current crisis," the draft said.
Reuters