Global Panel Proposes Stronger Rules for Banks PARIS - Banks should hold on to more of their earnings and improve the quality of their assets to guard against the kind of shocks that brought the financial system to the brink of collapse, an international financial regulator said Thursday. The regulator, the Basel Committee on Banking Supervision, which brings together central bankers and regulators from around the world, was charged with developing tighter rules to discourage excessive risk-taking and the use of off-balance sheet accounting. The coordinated approach was meant to smooth regulatory differences and keep financial institutions from playing one nation against another. The proposals must be adopted by the national governments to become binding. Building on recommendations made in July, the committee called for lenders to strengthen their capital bases, lower the amount of risky assets they hold and bolster their balance sheets during expansions to prepare for leaner times. The panel also urged caution on dividends and bonuses, especially for weakened banks, saying it was unacceptable "to use future predictions of recovery as justification for maintaining generous distributions to shareholders, other capital providers and employees." Patrick W. Fell, who consults on banking capital regulation at PricewaterhouseCoopers in London, said the report showed that "regulators in the different countries are coming around to the same way of thinking." "Differences remain," Mr. Fell said, "but over the next year and a half they'll come much closer." The committee, based in Basel, Switzerland, at the Bank for International Settlements, called for improving the quality of the so-called Tier 1 capital base, which refers to liquid assets that banks have to retain as a cushion. It did not provide a target figure. Currently, the global standard Basel II agreement calls for a minimum of 4 percent of "core" Tier 1 capital and 8 percent total Tier 1. The committee said it would decide on minimum capital requirements through an "impact assessment" and in consultation with banks. But the core Tier 1 capital must be in the form of common shares and retained earnings, it said, adding that the use of hybrid securities - instruments that blend characteristics of debt and equity - would be phased out. Regulators also called for the introduction of leverage-ratio limits, which would cap the total amount banks could lend out relative to their capital. That is meant to give regulators a better handle on systemic risk and to close a loophole that allowed financial institutions to take on unmanageable risks even as they adhered to the letter of the law. The committee called for enacting most of the measures by the end of 2012, but full adoption may take as much as a decade. Banks should also maintain high quality, liquid assets adequate to survive 30 days of "acute short-term stress," it said. "The good news is the reforms are going broadly in the right direction to strengthen the capital base and reduce the possibility for regulatory arbitrage," said Nicolas Véron, a specialist in financial regulation at the Bruegel research center in Brussels. But there are still significant challenges in terms of the room for circumvention and the consistency of implementation.