Macro-regulation proposal under the new Basel III bank rules could force Australian banks to set aside as much as an additional 2 percent of capital during rapid credit growth.

According to a spokesman for Wayne Swan, Australia would cooperate with the Basel Committee in improving the world financial system, while taking into account the fact that the financial crisis did not impact the country as badly as others.

The Australian Prudential Regulation Authority will work closely with the Reserve Bank in instituting the reforms and measuring when the economy was approaching danger levels. The starting point would be examining the ratio of credit growth to GDP. If it began climbing above the long-term trend, that would flag that a credit bubble was developing.

The global committee announced on Friday it was to provide a complete package of capital and liquidity reforms in time for the November 2010 summit of G20 leaders in Seoul.

Banks would be required to build up a buffer of capital when national authorities believe that there is excess credit growth together with an accumulation of system-wide risk, the Basel Committee said in a statement..

"This will help ensure the banking system has an adequate buffer of capital to protect it against future potential losses," according to the Swiss-based institution.

The buffer plan will be completed by the end of the year and will be included in the main Basel III package, instead of being implemented separately.

Banks would be given 12 months to set their capital buffers to the needed level before constraints are slapped on distributions of earnings.