International banks received a New Year fillip when regulators revealed that the first ever global liquidity standards would be less onerous than expected and not be fully enforced until 2019, four years later than expected.
Aimed at preventing a repeat of the 2008 bank collapses, the “liquidity coverage ratio” announced yesterday marks the first time that global regulators have sought to require individual banks to hold enough cash and easy-to-sell assets to allow them to survive a short-term crisis. The measure is the second plank of the Basel III reforms. Tougher capital rules began to be phased in this month.
The final LCR rule approved by the Basel Committee on Banking Supervision is significantly more flexible than the draft proposed more than two years ago. Banks will be able to count a wider variety of liquid assets towards their buffers, including some equities and high-quality mortgage-backed securities. Calculation methods have also been changed in ways that will significantly reduce the size of the liquidity buffers many institutions have to hold against outflows from possible depositor runs and corporate and interbank credit lines.