BERLIN/BASEL, SWITZERLAND – The world’s top banking regulatory body Sunday eased the first global liquidity rules scheduled to start applying to banks in 2015 and aimed at improving their ability to survive financial crises.
The Basel Committee on Banking Supervision said it had widened the definition of the easy-to-sell assets that banks will have to hold to survive an acute 30-day crisis. The Basel III standards had been initially proposed in 2010 but banks and financial institutions have since lobbied intensely to make the rules more flexible and result in lower costs for the sector.
The details of the liquidity coverage ratio (LCR), which was drafted to avoid a repeat of the 2008 banking crisis and unanimously endorsed on Sunday by the Basel group’s top oversight body, give the banks a reprieve.
Its provisions include a much broader definition of the minimum assets every bank needs to hold, making it less costly for them to maintain the required buffer. “The changes to the definition of the LCR, developed and agreed by the Basel Committee over the past two years, include an expansion in the range of assets eligible as HQLA (high quality liquid assets),” the group said.
The new LCR’s full details will also be fully implemented only in 2019, instead of 2015 as initially proposed. “Specifically, the LCR will be introduced as planned on Jan. 1, 2015, but the minimum requirement will begin at 60 percent, rising in equal annual steps of 10 percentage points to reach 100 percent on Jan. 1, 2019,” the group announced.
“For the first time in regulatory history, we have a truly global minimum standard for bank liquidity,” said Mervyn King, chairman of the Basel group’s top oversight body and governor of the Bank of England.
The rules are part of wider efforts to prevent another shock to the financial system like that prompted by Lehman Brothers’ 2008 collapse, which led to taxpayer-funded bailouts of banks. The new reforms will require lenders to increase their highest-quality capital — such as equity and cash reserves — gradually from 2 percent of the risky assets they hold to 7 percent by 2019.