Global regulators on Sunday agreed to a new package to triple the size of bank reserves to counter any future losses or crises, in a deal which has been deemed to be one of the most important reforms to emerge from the financial crisis.

The deal is not yet done; it must be agreed on by the G20 of nations, but it seems that there is widespread acknowledgment that it must be implemented. In fact, it is no coincidence that the deal was hammered out just a couple of days before the convening of the European Council and it is sure to be discussed during this week’s meeting.

The new agreement, known as Basel III, sets a new capital ratio of 4.5 per cent plus a new buffer of 2.5 per cent. This translates into a seven per cent capital ratio, compared to the two per cent which was the previous criterion.

Any banks which face a shortage of capital within the seven per cent zone will face restrictions on paying of dividends and discretionary bonuses. In a climate where the perception about world banks, especially the larger ones, got off scot-free after causing the crisis, this will be music to the ears of Joe Public, who still wants to see banks being sanctioned.

In effect, many people around the world believe that the crisis was caused by bankers’ greed, only for governments around the world to throw money at the problem, while bonuses continued to be paid out. All the while, homes and jobs were lost.

The new rules will be phased in between 2013 and 2019. A majority of countries, it has been reported, wanted tougher rules, but a lower ratio and longer phasing-in period was agreed on after resistance led by Germany. The Germans are concerned that smaller savings banks will not be able to provide the liquidity to hold the seven per cent reserve, while most Irish banks are insolvent and the government does not have the cash to bail them out. Meanwhile Greece still hovers over the fine line. A shrinking economy and a ballooning public debt could scupper any plans to bring the economy back in line with Maastricht criteria by the time the billions of euro bailout money is phased out.

Many analysts are saying that in hindsight; the two per cent criteria which was previously in place was laughable, to say the least. They believe that even seven per cent is not enough.

But, the plan – which is a link in a whole chain – still rests on one crucial point. Experts drafted the seven per cent figure on the premise that the world is going to return to strong economic growth.

Any plan is feasible if you are optimistic enough. But, if the worst comes to the worst; if Ireland defaults and Greece cannot recover on its own steam after the bailout payments end… will seven per cent be enough?

If the housing boom does not recover and regain strength… will seven per cent be enough? We also ask another fundamental question, if some banks struggle to raise the seven per cent buffer, will they still be lending? If the answer to that last question is a no, then it will mean that banks will not lend money and this will continue to stymie employment and growth. Without growth… is seven per cent feasible? Much remains to be answered. And that answer seems to be far off, with prayers for a strong V-shaped curve being the basis for global financial policy. Until the next one then.