Central bank chiefs across the globe agreed to delay implementation of the Basel III liquidity requirements that would have mandated a total of 7% in loan loss and other reserves for banks.
They relaxed the restrictions on assets that would qualify to cover the liquidity cover ratio (LCR) and also allowed banks an extra four years to come into full compliance.
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There were competing views among multiple countries and the compromise brings into existence the first global minimum standard for bank liquidity.
The chiefs now agree that the new standard will not inhibit the ability of the global banking system to facilitate a global financial recovery.
The new LCR would force banks to hold enough liquid assets to survive a 30-day credit squeeze.
They would also only have to meet 60% of the LCR’s requirement by 2015 while the full rule will be phased in annually through 2019.
Basel III had been criticized as too complex, delaying its implementation in both Europe and the US. It was designed to prevent another crisis
like the credit crisis of 2008.
Banks had warned that the original rules would force them to buy more sovereign debt, which would expose them to the level of a government’s solvency.
The Basel Committee on Banking Supervision is also reviewing another draft rule, the net-stable funding ratio that requires banks to back long-term lending with funds that can weather a crisis.