Banks will be allowed to breach minimum Basel liquidity rules during financial crises so that they can avoid cash-flow difficulties, global financial regulators have said.
“During a period of stress, banks would be expected to use their pool of liquid assets, thereby temporarily falling below the minimum requirement,” the Basel committee on banking supervision’s governing board said, following a meeting yesterday. Work on the main elements of the rule should be completed by the end of 2012, it said.
The aim of the measure – a liquidity coverage ratio – is to ensure that lenders hold enough easy-to-sell assets to survive a 30-day credit squeeze. The requirement is set to enter into force in 2015.
Banks have argued that in its current form the liquidity rule may curtail loans by forcing them to hoard cash and buy government bonds. Bank watchdogs say the standard is needed to prevent a repeat of the collapses of Lehman Brothers and Dexia, which were blamed in part on the lenders running out of short-term funding.
Separately, the governing board said the committee will carry out “detailed” peer reviews of whether nations have correctly implemented capital rules for lenders.
– (Bloomberg)
