Banks win victory over new Basel liquidity rules

Standards will be more relaxed than planned and also phased in over four years from 2015

The heads of the world's top regulators and central banks yesterday approved plans to require banks to hold significantly higher levels of liquid assets in order to reduce the chances of a repeat of the 2008-09 financial crisis. But in an apparent response to financial sector lobbying, they also relaxed the definition of what will be considered a liquid asset, and said banks will have four years longer than expected to implement the new standards.

The Group of Governors and Heads of Supervision (GHOS), meeting in the Swiss city of Basel, approved the Liquidity Coverage Ratio (LCR) put forward by the Basel Committee on Banking Supervision.

Sir Mervyn King, present chairman of the GHOS and outgoing Governor of the Bank of England, said: "The agreement reached today is a very significant achievement. For the first time in regulatory history, we have a truly global minimum standard for bank liquidity."

He added that the objective of building up liquidity buffers of easily saleable assets was to prevent commercial banks using central banks as a "lender of first resort" in times of financial stress.

During the 2008-09 financial crisis many banks found themselves shut out of wholesale money markets as investors panicked about the large amount of toxic subprime mortgage debt that institutions had accumulated. The Bank of England and the British Government were forced to offer liquidity support and capital injections into the UK financial sector peaking at £1 trillion. The US Federal Reserve and the European Central Bank also had to offer massive levels of support to American and European banking sectors in the crisis to prevent lenders collapsing as they too were shut out of global credit markets.

UK banks have complained that the requirement of the Financial Services Authority that they hold higher levels of liquid assets in the wake of the financial crisis has impeded their ability to lend to the British economy. This argument has been rejected by the FSA and the Bank. Nevertheless, the new Basel liquidity requirements will only be gradually phased in between 2015 and 2019, rather than by 2015 as initially proposed. And in its list of what regulators will consider to be "high quality liquid assets", the GHOS includes equities, lower-grade corporate bonds and some mortgage-backed securities, all of which will make the adjustment for banks easier.

The Basel Committee is also working on parallel plans to require banks to increase their capital buffers to enable them to cope with losses in financial crises without going bust. The committee has indicated that it will require banks to hold a minimum capital buffer of 3 per cent of their total assets by 2019. But some regulators have criticised this target as being insufficient. Thomas Hoenig of America's Federal Deposit Insurance Corporation has pointed out that US banks were holding roughly this level of capital before the crisis and still required large amounts of new equity to remain solvent.

Further, Andy Haldane, the Bank of England's executive director of financial stability, has criticised the Basel Committee for proposing to allow banks to use complex and opaque "risk weights" to determine how much capital they need to hold against their assets.

The GHOS also endorsed a new written charter for the Basel Committee, which it said would enhance the transparency of efforts to achieve global co-ordination of banking supervision and regulation.

News
i100
Life and Style
Cooked up: reducing dietary animal fat might not be as healthy as government advice has led millions of people to believe
healthA look at how governments started advising incorrectly on diets
Sport
Neil Warnock
football'New' manager for Crystal Palace
News
REX/Eye Candy
science
PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Voices
voices
Sport
Roger Federer is greeted by Michael Jordan following his victory over Marinko Matosevic
tennisRoger Federer gets Michael Jordan's applause following tweener shot in win over Marinko Matosevic
News
peopleJustin Bieber accuses paparazzi of acting 'recklessly' after car crash
News
people
Arts and Entertainment
Oppressive atmosphere: the cast of 'Tyrant'
tvIntroducing Tyrant, one of the most hotly anticipated dramas of the year
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Client Services Executive / Account Executive - SW London

£23000 - £26000 per annum: Ashdown Group: Account Executive / Client Services ...

PA to CEO / Executive Secretary

£36000 - £38000 per annum: Ashdown Group: Executive PA to CEO & Executive Dire...

Generalist HR Administrator, Tunbridge Wells, Kent - £28,000.

£25000 - £28000 per annum: Ashdown Group: Generalist HR Administrator - Tunbri...

Management Accountant

£30-35k + Excellent Benefits: Guru Careers: We are seeking a Management Accoun...

Day In a Page

Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?
Rachael Lander interview: From strung out to playing strings

From strung out to playing strings

Award-winning cellist Rachael Lander’s career was almost destroyed by the alcohol she drank to fight stage fright. Now she’s playing with Elbow and Ellie Goulding
The science of saturated fat: A big fat surprise about nutrition?

A big fat surprise about nutrition?

The science linking saturated fats to heart disease and other health issues has never been sound. Nina Teicholz looks at how governments started advising incorrectly on diets
Emmys 2014 review: Can they genuinely compete with the Oscars

Can they genuinely compete with the Oscars?

The recent Emmy Awards are certainly glamorous, but they can't beat their movie cousins
On the road to nowhere: A Routemaster trip to remember

On the road to nowhere

A Routemaster trip to remember
Hotel India: Mumbai's Taj Mahal Palace leaves its darker days behind

Hotel India

Mumbai's Taj Mahal Palace leaves its darker days behind
10 best pencil cases

Back to school: 10 best pencil cases

Whether it’s their first day at school, uni or a new project, treat the student in your life to some smart stationery
Arsenal vs Besiktas Champions League qualifier: Gunners know battle with Turks is a season-defining fixture

Arsenal know battle with Besiktas is a season-defining fixture

Arsene Wenger admits his below-strength side will have to improve on last week’s show to pass tough test
Pete Jenson: Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought

Pete Jenson: A Different League

Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought
This guitar riff has been voted greatest of all time

The Greatest Guitar Riff of all time

Whole Lotta Votes from Radio 2 listeners
Britain’s superstar ballerina

Britain’s superstar ballerina

Alicia Markova danced... every night of the week and twice on Saturdays
Berlin's Furrie invasion

Berlin's Furrie invasion

2000 fans attended Eurofeurence
‘It was a tidal wave of terror’

‘It was a tidal wave of terror’

Driven to the edge by postpartum psychosis