2010.09.2008:35:00UTC+00German Banks Can Meet Basel III Without Hurting Economy, Bundesbank Says

Germany's banks would be able to meet higher capital requirements as per new Basel norms via accumulated earnings or capital increases, without hurting the real economy, the Bundesbank said in its monthly report on Monday.

The new measures will not reduce bank lending, the central bank added. However, new provisions are likely to reduce the earning prospects of the banks.

Last week, the Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision agreed to substantially raise the amount of capital that banks must set aside against potential losses.

Accordingly, internationally active banks must now hold a minimum 7% of assets as total common equity. The minimum requirement for common equity, which is highest form of loss absorbing capital, was raised to 4.5% from 2%.

The central bank today said the upward drive in the German economy weakened notably at the start of the summer. Elsewhere, the finance ministry said it expects the economic recovery to continue into the second half of the year, albeit at a significantly slower pace.

The German economy grew at a record pace of 2.2% between April and June, driven by exports and investment. The economy's strong showing in the second quarter spurred the country's central bank to raise its 2010 growth forecast to 3%.

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