Saturday, January 20, 2018

Banks win an easing of asset rules

A group of top regulators and central bankers Sunday gave banks around the world more time to meet new rules aimed at preventing financial crises, saying they wanted to avoid the possibility of damaging the economic recovery.

The rules are meant to make sure banks have enough liquid assets on hand to survive the kind of market chaos that followed the collapse of Lehman Bros. in 2008. Meeting in Basel, Switzerland, the committee, made up of bank regulators from 26 countries, also loosened the definition of liquid assets.

The decision takes some pressure off banks, which have complained that the new guidelines would throttle lending and hurt economic growth.

Mervyn King, governor of the Bank of England and chairman of the group, said there was no intent to go easier on lenders. "Nobody set out to make it stronger or weaker," he said of the rules in a conference call with reporters, "but to make it more realistic."

Still, the decision was a public concession from the authors of the so-called Basel III rules that the regulations could hurt growth if applied too rigorously. It was endorsed unanimously by participants, including Ben Bernanke, chairman of the Federal Reserve, and Mario Draghi, president of the European Central Bank.

The rules were drafted by the Basel Committee on Banking Supervision, named after the Swiss city where many of the discussions have taken place. The Basel rules are not binding on individual countries, but there is substantial international pressure to comply.

After Lehman's collapse, many banks discovered they did not have enough cash or readily salable assets to meet short-term obligations. The rules require banks to have enough cash or liquid assets on hand to survive a 30-day crisis, like a run on deposits or a credit rating downgrade. They will not take full effect on Jan. 1, 2015, as originally planned, but will be phased in starting on Jan. 1, 2019.

The liquidity coverage ratio also defines what qualifies as liquid assets: The assets cannot be already pledged as collateral, for example, and they must be under control of a bank's central treasury, so it can act quickly to raise cash. The central bankers and regulators also broadened the definition of liquid assets.

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