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Banks gain leeway over Basel rules

by Renee Cordes  |  Published January 7, 2013 at 9:36 AM
Global lenders will have more time and flexibility to implement new liquidity rules under a compromise struck over the weekend by central bank and regulatory chiefs meeting in Basel, Switzerland.

The revised plan allows banks to use an expanded range of assets including some equities and high-quality residential mortgage-backed securities to meet the so-called liquidity coverage ratio, or LCR. Broadly speaking, banks have to have enough easily sellable assets that can be quickly converted into cash in case of a 30-day credit squeeze.

Lenders also have until Jan. 1, 2019 to comply with the new rules, four years after originally foreseen, although they will be phased in gradually beginning in early 2015. The rules, watered down amid following a two-year lobbying effort by the banking industry, are a key part of a raft of new capital and liquidity requirements known as Basel III designed to prevent a repeat of the 2008 financial crisis.

Banks were the biggest gainers on the London Stock Exchange Monday morning, with Barclays plc adding 3.5% to trade at 286.30 pence and Lloyds Banking Group plc advancing 1.7% to 50.73 pence. In Frankfurt, Deutsche Bank AG was up 3.7%, and in Paris, Société Générale SA and BNP Paribas SA each rose 2.8%. Credit Suisse Group in Zurich gained 3% and UBS rose 1.8%.

"For the first time in regulatory history, we have a truly global minimum standard for bank liquidity," Bank of England Governor Mervyn King (pictured), who chairs the Basel Committee's Group of Governors and Heads of Supervision, said at a press conference Sunday.

"Importantly," he added, "introducing a phased timetable for the introduction of the LCR, and reaffirming that a bank's stock of liquid assets are usable in times of stress, will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery."

Stefan Ingves, the Swedish central banker who chairs the Basel committee itself, added that the rule changes "are designed to ensure that it provides a minimum standard for bank liquidity - a standard that reflects actual experience during times of stress."

During the next two years, the Committee plans to complete the overhaul of the policy framework already under way, including limiting banks' over-dependence on short-term funding, The Committee, made up of representatives of 27 countries, also reiterated the importance of "full, timely and consistent" implementation of Basel III standards.

Tags: Barclays plc | Basel III | BNP Paribas SA | Credit Suisse Group | Deutsche Bank AG | LCR | liquidity coverage ratio | Lloyds Banking Group plc | Mervyn King | residential mortgage-backed securities | RMBS | Société Générale SA | Stefan Ingves | UBS

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