Basel introduces tough capital rules affecting hybrid securities

On Thursday, 13 January 2011, the Basel Committee announced guidelines that impose tough new requirements on hybrid securities if banks wish to count these towards their regulatory capital. The aim of the new guidelines is to ensure that a bank's regulatory capital fully absorbs loss at the point the bank becomes "non-viable" and exposes taxpayers to losses.

The guidelines follow the announcement in December last year of detailed Basel III rules on regulatory capital and global liquidity standards which introduced stricter capital and liquidity requirements for banks.

Thursday's announcement appears to evidence the Basel Committee's determination to tighten capital requirements even further in order to protect taxpayers (who are often required to rescue distressed banks to protect depositors) in contrast with previous regulatory capital rules, which are largely focused on protecting depositors.