* Investors want Basel III fully met by 2013 - Ackermann
* Says economic costs could spiral with Basel III add-ons
* Adds contingent capital necessary option, demand unclear
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By Steve Slater
LONDON, Oct 18 (Reuters) - The economic cost of tougher global capital rules for banks could explode if further requirements on big banks are not co-ordinated, Deutsche Bank chief executive Josef Ackermann said.
"There can be no doubt that Basel III alone will have short- to medium-term economic costs. These costs might explode with all the add-ons that are currently being discussed," Ackermann told a banking regulation conference on Monday.
Global regulators have agreed a set of new bank capital rules known as Basel III.
Big banks may face additional "surcharges" because of the extra fallout if they fail. Countries like Switzerland and Britain are poised to implement tougher rules, and impose them earlier than expected.
Ackermann said meetings with investors showed they want banks to start meeting Basel III rules by 2013 -- the start date leaders of the world's top economies (G20) are set to endorse next month.
"While regulators have commendably set long transition periods for attaining the new capital ratio, markets ... may not be quite so patient," he said. "In recent roadshows for Deutsche Bank's capital hike I learned investors ... want to see banks meet the full requirements by 2013."
Ackermann, who said he could understand regulators wanting to control leverage more than before, said Basel III strikes the right balance between creating more stability and limiting the fallout, but warned returns for the industry will fall as more capital is retained.
He said hybrid instruments should be available for any ailing bank to turn to in a bid to get back to health.
"I believe contingent capital should be part of any bank's sound capital management," he said. "It will be interesting to see how great investor appetite is for such capital instruments.
"There is some concern, which I share, that the investor base may be limited and such instruments be very expensive."
Contingent capital comes in the form of bonds that convert to equity to provide banks with more capital when they need it, but regulators face a tough job convincing investors to buy the new instruments in bulk.
(Editing by Erica Billingham and David Hulmes)