Regulators to ease up on banks to get credit flowing: source

Fri Jan 4, 2013 5:29am EST
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By Huw Jones

LONDON (Reuters) - Banks will get more time to build up cash buffers to protect against market shocks under a rule change that could help free up credit for struggling economies, a European regulatory source said.

The Basel Committee, made up of banking supervisors from nearly 30 countries, is expected to announce the revision on Sunday to its "liquidity coverage" ratio or LCR, part of efforts to make banks less likely to need taxpayer help again in a crisis.

The change comes after heavy pressure from banks and some regulators, who feared Basel's original version would suck up too much liquidity at a time when ailing economies are badly in need of a ready supply of credit to finance growth.

Banks were required to comply with the LCR by 2015, but will now get more time, the source said. The Basel Committee had no immediate comment.

The LCR requires banks to hold enough liquid assets like easily sellable government and corporate bonds to cover net ouflows for up to a month. Under the Basel III regime, the LCR rules would run alongside separate rules governing banks' capital, intended to ensure their longer-term stability.

"In principle, there will be a phase-in similar to what we have for capital requirements. There is no reason to treat liquidity differently from capital," the source said on condition of anonymity due to the issue's sensitivity.


Banks would still start complying in 2015, perhaps holding about 60 percent of the buffer and building up to 100 percent by the start of 2019, when Basel's separate, tougher bank capital requirements also must be met in full.   Continued...

The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt December 6, 2012. REUTERS/Lisi Niesner