Central banks expand dollar operations (Reuters)

FRANKFURT (Reuters) – Major central banks around the world will cooperate to offer three-month U.S. dollar loans to commercial banks in order to prevent money markets from freezing up in the wake of Europe's sovereign debt crisis.

The European Central Bank said on Thursday it would hold three fixed-rate operations between October and December to provide banks as many dollars as they needed, in order to ease any funding crunch over the year-end.

"The European Central Bank has decided, in coordination with the (U.S.) Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three U.S. dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year," the ECB said.

The announcement sharply boosted European bank shares and the euro. Shares in French bank BNP Paribas climbed as much as 22 percent from the previous day's close before ending 13 percent higher.

Some banks are finding it hard to obtain dollar funding for periods of longer than a few days as U.S. money market funds and other traditional dollar lenders become increasingly nervous about the threat of a Greek debt default, which could destabilize markets throughout the region. European bank stocks have lost a third of their value since July.

"This is a very welcome decision," Silvio Peruzzo, economist at RBS, said of the ECB's announcement.

"Market reaction is strong given the news in recent days that some big banks are struggling to get funding. This eases many funding concerns that there are regarding many European banks."

SIMULTANEOUS

The British and Swiss central banks said they would conduct three-month dollar lending operations simultaneously with the ECB on October 12, November 9 and December 7. The Bank of Japan, which already holds three-month dollar tenders, will add one on October 18.

The Fed, which in the past has faced criticism from lawmakers in Washington for its role in rescue efforts for European banks, will not itself offer three-month loans to banks in the United States. But it maintains dollar swap lines with the ECB and other central banks to ensure they can obtain additional supplies of dollars when needed.

The ECB already offers seven-day dollar loans every week. Two unidentified banks tapped this funding on Wednesday, borrowing a total of $575 million. It was the second time in a month that the facility was used; previously, it had not been tapped since February.

At the height of the global financial crisis in 2008-09, the ECB regularly held three-month dollar operations, before calmer conditions allowed it to phase them out. It held a one-off, three-month operation in May 2010 around the time of Greece's first international bailout.

(Editing by Andrew Torchia)

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Suicide bombers, gunmen kill 22 in central Afghanistan (Reuters)

PARWAN, Afghanistan (Reuters) – Taliban suicide bombers killed at least 22 people in a bold attack on a governor's compound in central Afghanistan during a security meeting Sunday, officials said, with gunbattles and several blasts heard before the assault was put down.

A Reuters witness and others nearby reported hearing at least five explosions as Afghan security forces inside the compound of Parwan governor Abdul Basir Salangi fought back.

Afghanistan's Interior Ministry said 22 people were killed and 34 wounded. The dead included 16 government employees and six police, it said in a statement.

Parwan lies about an hour's drive northwest of the capital, Kabul, another worrying sign of the reach of the Taliban and other insurgents.

Eight days ago, a rocket-propelled grenade fired by the Taliban brought down a NATO helicopter in another central Afghan province near Kabul, killing 30 U.S. troops and eight Afghans in the worst single incident for foreign forces in 10 years of war.

The Taliban claimed responsibility for the Parwan attack. Zabihullah Mujahid, a spokesman for the Islamist group, said the assault began when a suicide car bomber detonated his explosives at the gate of the compound.

He said five other bombers made it inside the compound, where he claimed U.S. officials were taking part in a meeting.

"Many people were killed, including Americans, but we still don't have the exact information," Mujahid said by telephone from an undisclosed location.

The Taliban often exaggerate incidents involving Afghan government targets or foreign troops.

The twisted wreckage of what appeared to have been the car bomb lay outside the gate of the compound as Afghan police and soldiers swarmed around the scene.

Sharafuddin Rahimi, an adviser to the Parwan police chief, said a meeting involving the police chief, the governor "and some foreign advisers" was under way when the attack was launched but said the attackers did not reach the meeting room.

The NATO-led International Security Assistance Force (ISAF) in Kabul confirmed several of its members were attending a shura, or meeting, in Salangi's office at the time of the attack but said none was injured.

Rahimi said one of the police chief's bodyguards was among those killed, as well as women and children.

"DESPICABLE"

Reuters Television pictures showed the bodies of some of those killed lying huddled behind what was left of their desks amid the debris of destroyed outer offices in the compound.

A concrete water tank inside the compound was filled with blood. Reuters pictures showed an unidentified Afghan policeman stomping on the head of one of the dead attackers.

In a statement from the presidential palace, Afghan President Hamid Karzai strongly condemned the Parwan attack. ISAF, which provided air cover during the fight, also condemned the raid as "despicable."

Reuters Television showed Salangi talking on the phone as officials rushed anxiously around his office. In the middle of the raid, he told Afghan TV his forces were fighting back.

Insurgents, often from the Taliban, have launched a series of attacks against government targets over the past year, often in the east of the country near the porous border with Pakistan's largely lawless tribal lands.

Violence across Afghanistan in 2010 reached its worst levels since the Taliban were toppled by U.S.-backed Afghan forces in late 2001, and 2011 has followed a similar trend.

While foreign military casualties hit record levels last year -- and 2011 has been almost as bloody -- civilians continue to bear the brunt of the costly and increasingly unpopular war.

U.N. figures released last month showed that the first six months of 2011 had been the deadliest of the war for ordinary Afghans, with 1,462 killed, a rise of 15 percent on the same period last year. The same U.N. report blamed 80 percent of those civilian casualties on insurgents.

U.S. and other NATO commanders have claimed success in halting the momentum of a growing insurgency in the Taliban heartland in the south over the past year, although insurgents have hit back with strikes against targets in once relatively peaceful parts of the country.

A recent spike in violence also followed the beginning of a gradual process to hand security responsibility back to Afghans last month.

That process will end with the final foreign combat troops leaving Afghanistan by the end of 2014, although some U.S. lawmakers have questioned whether that timetable is not quick enough.

(Additional reporting by Mirwais Haroon, Abdul Saboor and Hamid Shalizi in KABUL; Writing by Paul Tait; Editing by Sanjeev Miglani and Alex Richardson)

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Central bankers agree on bank capital surcharge plan (Reuters)

BASEL, Switzerland/LONDON (Reuters) – Global banking regulators have agreed on a proposal to slap an extra capital charge on the world's biggest banks to make them safer by 2019.

The surcharge is part of a series of regulatory reforms launched in response to the financial crisis, which forced countries worldwide into costly bailouts of their banking sectors to prevent systemic collapses.

The Group of Governors and Heads of Supervision (GHOS) said after a meeting in Basel on Saturday the proposal would be put out to public consultation next month.

"The additional loss absorbency requirements are to be met with progressive common equity tier 1 capital requirement ranging from 1 percent to 2.5 percent, depending on a bank's systemic importance," the group said in a statement.

An additional 1 percent surcharge would also be imposed if a bank becomes significantly bigger, pushing the total to 3.5 percent.

The plans, which need approval from world leaders (G20) in November, would be phased in between January 1 2016 and end of 2018.

The capital surcharge will come on top of the new 7 percent minimum core capital all banks across the world will have to hold under new Basel III rules being phased in over six years from 2013.

However, many of the world's biggest banks already hold core tier 1 capital ratios of 10 percent or more and therefore easily meet or exceed the top end of the surcharge band.

The central bankers have opted for a smaller surcharge than forseen but, in return, the surcharge will have to be in the form of top quality capital -- retained earnings or common equity.

This marks a victory for hardline countries such as Britain and the United States but will disappoint some banks that have been hoping to use hybrid debt such as contingent capital (CoCos) to pad out the surcharge band.

Dirk Jaeger, Managing Director for supervision matters at Germany's banks association BdB said the decision was not much of a surprise: "But we regret that bank levies and CoCo bonds do not count for the additional capital buffer."

COCOS REVIEWED

The proposal, which was due to be finalized by last November but faced opposition from banks and some countries, will apply initially to so-called globally systemically important banks (G-SIBs).

"These measures will strengthen the resilience of G-SIBs and create strong incentives for them to reduce their systemic importance over time," the statement said.

The consultation paper in July will indicate how many banks face a capital surcharge but it is not clear yet if their names will be published.

The number of banks affected is likely to change over time as lenders grow or shrink and the consultation will spell out how often a snapshot of the sector will be taken.

Banks will face a surcharge according to an indicator that draws on five elements -- size, interconnectedness, lack of substitutability, global (cross-jurisdictional) activity, and complexity.

The group of central bankers and the Basel Committee it oversees said they will continue to review the use of contingent capital.

The central bankers said they would support the use of contingent capital to meet higher national requirements than the global minimum surcharge.

However, even then, there would have to be a high-trigger for converting the debt into equity to help absorb losses on a going concern basis, the central bankers said.

(Additional reporting by Alexander Huebner in Germany; Editing by Toby Chopra)

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