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Regulators opt for stricter banking rules to cover cyber and fraud

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(Reuters) — Global regulators have proposed stricter rules on how banks calculate the amount of capital they need to cover risks to operations from cyber attacks, fraud or hefty fines.

The proposals are the latest from the Basel Committee of regulators that would limit the ability of big banks to use their own models to cut the amount of capital they need.

When taxpayers had to shore up undercapitalized lenders during the 2007-09 financial crisis, regulators found huge differences in capital holdings because of the way big banks used models.

"The proposals are an important step towards completing the post-crisis reforms during the current year," Stefan Ingves, Basel Committee chairman and governor of Sweden's central bank said in a statement.

Basel, in a second public consultation, proposed ditching the use of models altogether.

Instead, the vast majority of lenders would use a "business indicator" based on their financial statements, meaning it would reflect the complexity and size of balance sheets.

Over the years, complexity has come to be regarded as a good pointer to losses from operational failures.

The biggest banks would be allowed also to have a "loss indicator" that reflected actual losses going back a decade.

This could then be used to justify a lower capital figure than the one thrown up by the business indicator. Regulators, however, could still insist on the higher number.

Some banks are likely to worry that the millions of dollars in fines they have paid for trying to rig benchmark interest rates or currency markets, will inflate the loss indicator, but Basel has introduced a mechanism to help smooth out extreme losses.

Operational risk is typically equivalent to about 15% of a bank's overall capital holdings, with credit risk or threat from loans turning sour, a much larger component.

Basel, whose rules are applied in about 100 countries, has yet to decide on calibration or how much extra capital, if at all, banks would have to hold against operational risks under the proposed changes.

Basel and other regulatory bodies have dismissed accusations from banks that this and other proposals in Basel's pipeline amount to a "Basel IV", or a step change in capital requirements from Basel III which forced lenders to hold far more capital since the financial crisis.

"For most banks, the committee expects that these proposals will have a relatively neutral impact on capital," Ingves said.

"While the objective of these proposals is not to significantly increase overall capital requirements, it is inevitable that minimum capital requirements will increase for some banks," Ingves added.

The committee has yet to decide when the new rules might come into force.