Regulators ease key bank rule to spur credit

Mon Jan 7, 2013 12:12am EST
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By Huw Jones

BASEL, Switzerland/LONDON (Reuters) - Global regulators gave banks four more years and greater flexibility on Sunday to build up cash buffers so they can use some of their reserves to help struggling economies grow.

The pull-back from a draconian earlier draft of new global bank liquidity rules, which aim to help prevent another financial crisis, went further than banks had expected by allowing them a broader range of eligible assets.

Banks had complained they could not meet the January 2015 deadline to comply with the new rule on minimum holdings of easily sellable assets, known as the liquidity coverage ratio and devised by the Basel Committee of banking supervisors, and at the same time supply credit to businesses and consumers.

The committee's oversight body agreed on Sunday to phase in the rule from 2015 over four years, as reported by Reuters on Thursday, and widen the range of assets banks can put in the buffer to include shares and retail mortgage-backed securities (RMBS), as well as lower rated company bonds.

The new, less liquid assets can only be included at a hefty discount to their value, but the changes are a significant move from the draft version of the rule unveiled two years ago.

Bank shares in Asia edged higher on Monday, with the MSCI financial subindex for Asia Pacific shares outside Japan up 0.3 percent, while Hong Kong-listed shares of HSBC Holdings Plc, which has high exposure to Europe where liquidity concerns are greater, rose 1.1 percent.

The Basel Committee, drawn from nearly 30 countries representing nearly all the world's markets, hopes the amendments will stop banks from shrinking loan books to comply with the rule.

"For the first time in regulatory history, we have a truly global minimum standard for bank liquidity," the oversight body's chairman Mervyn King told a news conference in Basel, Switzerland.   Continued...

The Governor of the Bank of England Mervyn King speaks to the Economic Club of New York in New York, December 10, 2012. REUTERS/Brendan McDermid