Central banks agree to seek bank capitalization through common stock.

BASEL, Switzerland, Sept. 7 Kyodo

Central banks of 27 major economies agreed Sunday night in Basel, Switzerland, to have banks increase their capital through issuing common shares as part of steps to reinforce the regulation of the banking sector.

In a meeting of the Bank for International Settlements' Basel Committee on Banking Supervision, central banks and financial supervision authorities from Japan, the United States, European nations and others agreed that the ''predominant form of Tier 1 capital must be common shares and retained earnings.''

Tier 1 capital refers to capital that banks raise through issuance of common and noncumulative preferred stocks as well as their retained earnings, built up with profits from each fiscal year.

The Basel Committee will finalize new measures for regulating and supervising the banking sector by the end of 2010, according to a press release.

The development is expected to draw objections from Japanese megabanks that have a comparatively low proportion of common shares in their core capital. The United States has strongly called for bank recapitalization through common stock issuance.

Financial leaders of the Group of 20 rich and developing countries agreed in their weekend London talks that banks will be required to ''hold more and better quality capital once recovery is assured.''