New Basel proposals are severe: France

New regulations that would force banks to raise their capital reserves could choke off lending and stifle economic growth, French Economy Minister Christine Lagarde said. In a bid to prevent a repeat of the financial crisis of 2008, the Basel Committee of central bankers and supervisors has sought stricter rules for the capital which banks maintain to shield their depositors and shareholders from losses. "I understand the regulators of the Basel Committee, who want to prevent such a crisis from recurring," Lagarde told French business daily Les Echos. "But their recommendations on liquidity and capital are severe and taken together, risk seriously threatening the financing of the economy." The Basel Committee proposals would lead to a wide ranging reform of the Basel II global bank capital accord, increasing the amount of capital and liquidity banks must hold and lessening the need for more taxpayer bailouts in future crises. The committee is consulting on the reforms before finalising them by the year end. They are due to take effect by the end of 2012 if economic recovery is assured. French banks have lobbied intensively against the new proposals and have pressed the government to back their efforts to have the recommendations eased. Lagarde said France's European Union partners were also concerned that the Basel committee's proposals were too restrictive and she hoped they could be revised by June in time to be adopted in an EU directive. Lagarde also said she was worried that the United States was lagging on commitments made at a meeting of the Group of 20 nations last year to force its banks to adopt the Basel II rules by 2011.