There is much to admire in the new agreement reached by global banking regulators on the amount of capital banks will be required to hold in the future. Its effectiveness will depend on other measures taken by regulators to enhance the stability of the financial system.

The ratio of common equity (whose definition has been tightened) to risk-weighted assets has more than doubled to 4.5 per cent. Regulators will be expected to restrict bonuses and dividends when banks dip into an additional buffer of 2.5 per cent. This is both politically savvy – bloated bonuses during a recession were hugely unpopular – and will discourage banks from allowing their buffers to fall too far. With further countercyclical cushions of up to 2.5 per cent to be brought in by national regulators, the package is a big improvement over the status quo.

Even so, it is not ideal. The new ratios are lower than they could have been and will not be fully implemented until 2019. The market has reacted positively, reflecting the fact that most banks will not have to raise fresh capital. The longer phase-in was a concession to smaller banks, especially in Germany, that would struggle to comply immediately with the rules. It is unwise: if banks are undercapitalised, they should not wait nearly a decade to fix the problem.