G20 finance leaders sketched out plans on Saturday that would force conservative rules on banks to curb risky lending blamed for triggering the financial crisis.

A Group of 20 source told Reuters that finance ministers and central bankers supported a U.S. proposal requiring banks to hold more and better quality capital. The idea is to provide greater protection against the sort of catastrophic losses that caused bank failures and bailouts of the past two years.

Banks will have tighter constraints on the high quality of core Tier One capital, the source said. This means banks will have to hold more capital and higher capital to act as a buffer.

The G20 also agreed that the Financial Stability Board will develop global living wills for banks so that they can be safely shut when they are in danger of failing. The plan will include steps that will allow depositors to be protected while the investment side is wound down, the source said.

Finance leaders were meeting in London to lay the groundwork for a G20 leaders summit in the United States later this month.

The economy looked brighter than it had in April when G20 finance ministers and central bankers last met, shifting the focus from crisis fighting to figuring out how to prevent a repeat of the financial upheaval that began two years ago.

U.S. Treasury Secretary Timothy Geithner caught many of his colleagues by surprise when he announced his proposal for tougher capital rules just one day before the G20 meetings began. Some officials complained that there was no time to study the proposal, and it initial received a cool reception from Germany and France.

Although there may be more fights ahead over the details, there was broad G20 agreement that banks must have more resources on hand to cover unexpected losses.

Disagreements remained over other key issues, including whether to cap bankers' pay and how to give fast-growing emerging economies more clout in international finance agencies the International Monetary Fund and the World Bank.

(Writing by Emily Kaiser;)

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