2010-09-15 08:26:45
A trader on the New York Stock Exhange holds his head in anguish as stocks fall in October, 2008 The new rules on banks' capital requirements are meant to prevent another financial crisis
The Bank for International Settlements (BIS) says the new rules on banks' capital requirements, which it helped to draw up, will make the world "a safer place".
Known as Basel III, the regulations require banks to hold more capital in order to absorb major losses.
Stephen Cecchetti of the BIS told the BBC that the new rules reduced the likelihood of another financial crisis.
However, the new rules have been accused of being soft on banks.
The BIS was part of the team that drew up Basel III alongside the Basel Committee, a group of bank regulators from 27 countries.
'Strong agreement'
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I don't think we know that the banks meet the (new) criteria and I don't think investors know either.
End Quote Professor Stephen Cecchetti Economic adviser, Bank for International Settlements
Speaking on the BBC World Service's Business Daily, Professor Cecchetti said: "It's important to keep in mind that if banks are left on their own, they tend to hold too little capital.
"I think the deal we have been able to get is a very good, very strong agreement."
Asked whether the rise in banking shares after the Basel III was agreed meant that investors believed most banks met the new criteria, Professor Cecchetti said: "I don't know that 24 hours in the stock market is something that we would want to put much interpretation on one way or another."
As well as increasing the capital banks hold to act as a buffer against future losses from 2% to 7%, Professor Cecchetti said Basel III had made the definition of what constitutes as capital stricter and widened the remit of what counts as banking activity.
As a result of the new amendments he added that it was not clear if all banks met the rules.
"Its our view that the definitional changes and the changes in the size of (banks) are underestimated," he said.
"I don't think we know that the banks meet the criteria and I don't think investors know either. We actually need more details from the banks."
Professor Cecchetti said that lobbying did not lead to the new regulations being watered down. He also acknowledged that more needed to be done to explain the agreement to the public.