Basel III will force banks to raise cash if credit bubble feared

Banks on a worldwide scale will be forced to shore up cash levels if their nation is on the brink of a credit bubble, according to new developments under the Basel III reform package.

In an agreement struck last month, according to the FT, banking regulators have agreed to interact with each other should an economy become overheated, based on the ratio of credit to GDP. Whenever an individual country declares a credit bubble, the nation's banks will be required to raise their capital requirements against potential losses. The FT reports: "Regulators in every other country would have to follow suit and impose a proportional surcharge on their own banks, based on the size of those institutions' exposure to the bubble country. "Once the bubble pops, regulators coul...