By Huw Jones and Andreas Kröner
LONDON/FRANKFURT (Reuters) - Global banking regulators have softened proposed new capital rules in a bid to ease European concerns that extra demands would cause banks to crimp their lending, three sources said.
The Basel Committee of banking supervisors from nearly 30 countries met in Chile last month in an effort to complete new bank capital rules used by lenders in the world's major financial centers. It is now trying to pin down the details.
Among the most contentious elements proposed by the Basel Committee was a capital "output floor", which the sources told Reuters on Tuesday its members have now agreed to change.
They have also reached a preliminary deal on setting higher leverage ratios for the world's 30 top lenders, they added.
However, the Basel Committee's compromises could still change and will still need endorsement from the committee's oversight body, which is expected to meet on January 8.
The Committee, which had no comment on progress of the talks, is aiming to iron out differences in how banks tot up risks on their books without leading to a significant increase in overall capital requirements.
Basel Chairman Stefan Ingves said after the meeting in Chile that an outline deal was emerging, but gave no details as regulators raced to meet an end of year deadline.
EU BOYCOTT THREAT
A top EU policymaker had threatened to boycott the new rules, saying they would hit the region's big banks hardest as they typically use their own computer models to calculate capital buffers, and have many home loans on their books.
Basel's proposed "floor" for capital is irrespective of what a bank's own model says is the right amount.
Sources said Basel members have agreed on starting this floor at 55 percent in 2020, rising by 5 percentage points to a maximum of 75 percent by 2025, a lengthy phase that will please Europe.
This means that capital cannot go below 75 percent of the amount that would be required if a bank had used the "standard" approach set out by regulators for totting up risks.
Basel had originally proposed a floor which would rise as high as 90 percent.
There is also relief for real estate loans in the latest compromise by giving national regulators discretion to allow banks to "split up" loans so that more capital is only required for high risk mortgages, the sources said.
And Basel's hotly-debated new rules for calculating capital from operational risks like fines for misconduct have been softened by giving national regulators discretion to tweak components of the calculation, the sources said.
Capital requirements for operational risk from January 2021 would be based on an indicator which is essentially the same as the current approach set by regulators, the sources added.
Regulators would also have discretion to shorten the three-year period originally proposed by Basel for excluding "non-repeatable" losses from the calculation, the sources said.
A preliminary agreement on setting higher leverage ratios - a measure of capital to a bank's assets on a non-risk weighted basis - for the world's 30 top lenders, has also been reached, the sources said.
"Globally systemic" banks already face higher capital requirements which are linked to their size and complexity.
The additional leverage ratio will be equivalent to half of this surcharge, and added from 2020 to the 3 percent minimum level all banks have to comply with, the sources said.
Most of the biggest banks have leverage ratios that already meet or exceed the surcharge.
German regulator BaFin, which has been a fierce critic of the Basel proposals said in a statement that "important questions" are still open.
(Editing by Alexander Smith)