Central bankers agree on bank capital surcharge plan (Reuters)

BASEL, Switzerland/LONDON (Reuters) – Global banking regulators have agreed on a proposal to slap an extra capital charge on the world's biggest banks to make them safer by 2019.

The surcharge is part of a series of regulatory reforms launched in response to the financial crisis, which forced countries worldwide into costly bailouts of their banking sectors to prevent systemic collapses.

The Group of Governors and Heads of Supervision (GHOS) said after a meeting in Basel on Saturday the proposal would be put out to public consultation next month.

"The additional loss absorbency requirements are to be met with progressive common equity tier 1 capital requirement ranging from 1 percent to 2.5 percent, depending on a bank's systemic importance," the group said in a statement.

An additional 1 percent surcharge would also be imposed if a bank becomes significantly bigger, pushing the total to 3.5 percent.

The plans, which need approval from world leaders (G20) in November, would be phased in between January 1 2016 and end of 2018.

The capital surcharge will come on top of the new 7 percent minimum core capital all banks across the world will have to hold under new Basel III rules being phased in over six years from 2013.

However, many of the world's biggest banks already hold core tier 1 capital ratios of 10 percent or more and therefore easily meet or exceed the top end of the surcharge band.

The central bankers have opted for a smaller surcharge than forseen but, in return, the surcharge will have to be in the form of top quality capital -- retained earnings or common equity.

This marks a victory for hardline countries such as Britain and the United States but will disappoint some banks that have been hoping to use hybrid debt such as contingent capital (CoCos) to pad out the surcharge band.

Dirk Jaeger, Managing Director for supervision matters at Germany's banks association BdB said the decision was not much of a surprise: "But we regret that bank levies and CoCo bonds do not count for the additional capital buffer."

COCOS REVIEWED

The proposal, which was due to be finalized by last November but faced opposition from banks and some countries, will apply initially to so-called globally systemically important banks (G-SIBs).

"These measures will strengthen the resilience of G-SIBs and create strong incentives for them to reduce their systemic importance over time," the statement said.

The consultation paper in July will indicate how many banks face a capital surcharge but it is not clear yet if their names will be published.

The number of banks affected is likely to change over time as lenders grow or shrink and the consultation will spell out how often a snapshot of the sector will be taken.

Banks will face a surcharge according to an indicator that draws on five elements -- size, interconnectedness, lack of substitutability, global (cross-jurisdictional) activity, and complexity.

The group of central bankers and the Basel Committee it oversees said they will continue to review the use of contingent capital.

The central bankers said they would support the use of contingent capital to meet higher national requirements than the global minimum surcharge.

However, even then, there would have to be a high-trigger for converting the debt into equity to help absorb losses on a going concern basis, the central bankers said.

(Additional reporting by Alexander Huebner in Germany; Editing by Toby Chopra)

'Taliban central'

22 June 2011 Last updated at 14:12 GMT By Bilal Sarwary BBC News, Afghan-Pakistan border Who wins in the border area could win the entire Afghan war Afghan intelligence officials in the province of Nuristan have accused the central government and Nato forces in particular of ignoring insurgents there and in other strategically important areas close to the Pakistani border.

They say that increasing violence in Nuristan - and in the provinces of Laghman, Kunar and Nangarhar - poses a significant security threat.

"Nuristan is now al-Qaeda and Taliban central," said one senior police official in the province. "They attack in hundreds, they have blocked key roads. We need to retake these areas from them."

The problem has become so acute that Gen Aminullah Amarkhel of the Afghan Army says the border with Pakistan is like a "house without a door".

The general commands Afghan forces along the 450km (280 mile) international border that cuts across Nangarhar, Kunar and Nuristan.

Poor security in this area makes it not only harder to fight insurgents - it also makes life easier for smugglers who also operate in the border areas and know its terrain only too well.

Meanwhile relations between the Afghan army and Pakistani forces remain tense on the border. Only recently Afghan officials in Kunar said close to 200 rockets landed in the province from Pakistan. Some of the 12 people killed were relatives of a powerful tribal elder who is also a district governor.

The police chief of Kunar, Gen Ewaz Mohammad Naziri, accused Pakistani forces of firing the rockets.

In recent months, Afghan and Pakistani border forces have clashed in the district of Goshta. Both sides exchanged heavy weapons fire.

'Enough is enough'

Like much of Afghanistan's armed forces, the border police are heavily dependent on their coalition partners.

The American military has helped them by providing armoured Humvees, heavy weapons and radios. More recently they have supplied sniper rifles.

"Since they have helped us, things have improved a lot. Their training is the most effective. But I need helicopters, I need mine-clearing machinery, I need better radios, I need more troops on the ground," says Gen Amarkhel.

Tribes in the region are helping security forces

A former Mujahideen fighter, Gen Amarkhel fought the Soviets in the 1980s for the National Islamic Front of Afghanistan and later against the Moscow-backed government of President Najibullah.

It could be that he is receiving help in his battle to control the border from some unlikely sources.

Various powerful tribes who reside in the area often help to defend it, an officer with the country's spy agency, the NDS, told the BBC.

Recently the Pakistani and Afghan Taliban killed nine members of a family on a wedding night.

"These tribes now have decided enough is enough," says the spy.

In order to get some idea of just how dangerous this part of the world is, Gen Amarkhel allowed me to accompany him as his troops launched an operation to seize illegally-held hashish.

The mission was top secret and the general had chosen not to disclose the programme even to his personal staff. Just before dawn, a heavily armed convoy of 20 vehicles was ready to move.

"There's been an exchange [of fire] last night with drug smugglers in the border district of Dehbala," Gen Amarkhel said. "We will know more on the way."

This is a mountainous region covered with dense vegetation. The tough terrain, thick forests, poor roads and non-existent communication network provides a perfect sanctuary to drug dealers, arms smugglers, the Taliban and al-Qaeda.

The government has never been in total control of this region. Nangarhar in particular is notorious for the illegal drug trade. Poppy and hashish are grown here and it is known to have several heroin processing laboratories.

Under-resourced

Like much of rural Afghanistan, Nangarhar's border districts have never had asphalted roads. There are few schools or heath clinics, making it easier for the smugglers and militants to recruit into their ranks.

Security forces are guarding one of the most treacherous areas in the country

After a two-hour drive, we arrive in the border village of Gorgoray. On the previous night, smugglers had used heavy machine guns and grenades on the border police.

But the police drove them back and the blood of the the smugglers could still clearly be seen on the ground. Although they escaped, they left behind 10 mules loaded with hashish estimated to be worth about $15m in London or New York.

"The Taliban and al-Qaeda charge a 10% tax on the smugglers," Gen Amarkhel said. "I am happy that we have denied them such huge revenue."

"In the past seven months, we have seized 7.5 tonnes of hashish and 60kg of heroin," the 46-year-old general said.

But he has his hands full. There are 5,000 soldiers under his command, mostly under-resourced and under-equipped. They have to guard one of the most treacherous areas in the country.

Back in his office, the general was trying to call in Nato air strikes to help one of his police posts, which was coming under attack from the Taliban.

''I will send you help very soon," the general said into his mobile phone. "We have asked for close air support. Keep fighting back.''

But as aides frantically tried to find the location, they realised that the insurgents were only a few hundred metres away from the district headquarters. Calling an air strike at this point could endanger civilians. The jets were ordered to turn back.

Hours later, dozens of heavily armed insurgents attacked a post not very far from the Pakistani side of the border. Border police reinforcements were again dispatched.

This is a part of the world that is literally in the line of fire - whoever wins here could win the entire Afghan war.