Central bank governors and heads of supervision have reached an agreement on Basel III, a sweeping reform that will force banks to hold more capital to withstand shocks, a source close to the process said on Sunday.

'There is a deal,' the source said.

The deal was reached by a group of central bank governors and top supervisors, chaired by European Central Bank President Jean-Claude Trichet.   

A formal announcement is expected later.

The so-called Basel III reform is aimed at ensuring banks hold enough capital to withstand shocks and avoid a repeat of governments having to bail out undercapitalised lenders.   

The finer details of Basel III were agreed in July, leaving Sunday's meeting to add the final two pieces in the jigsaw -- how much extra capital will be required and how long banks have to comply.   

Leaders of the Group of 20 leading countries called on regulators and central bankers in 2009 to work on tougher bank capital rules.   

The G20 leaders are set to endorse Sunday's anticipated deal when they meet in Seoul in November with the new rules taking effect from 2013 in stages.

Analysts, regulators and bankers expect Sunday's meeting to agree that banks will need to have a minimum core Tier 1 capital ratio of 7 to 9 percent, including a capital conservation buffer.   

Tier 1 refers to a bank's basic buffer for absorbing shocks and the core level was pegged at 2 percent under existing rules, too little to withstand the worst financial crisis since the Great Depression.   

The new buffer would include a minimum base core Tier 1 capital ratio of 4.5 to 6 percent and an additional capital conservation buffer of 2 to 3 percent. Any bank that fails to keep above the buffer would have to curb payouts such as bonuses and dividends.   

There is some debate over how long banks should have to comply with the tougher rules but the final packages is expected to agree on a timespan of about five to 10 years.

Top banks are not expected to rush to raise funds, although there remain worries that banks in some countries face a long road to recovery and the changes will crimp lending.   

Yet regulators are confident that the new Basel capital rules will improve financial system stability without hurting lending. - Reuters