Amid Fiscal Cliff, Banks Reprieved For 4-Years

Cohete Rojo · Jan 8, 2013

Banks will continue to operate under current capital requirements, not having to conform to Basel III.

Banks won the delay to fully meet the so-called liquidity coverage ratio, or LCR, following a deal struck by regulatory chiefs meeting yesterday in Basel, Switzerland. They’ll be able to pick from a longer list of approved assets including equities and securitized mortgage debt as they seek to build up buffers of liquidity for use in a financial crisis.

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The longer timetable for applying the LCR should ensure “that the ensuing costs on banks, and therefore their clients’ products” are “introduced more gradually,” Patricia Jackson, head of prudential advisory at Ernst & Young LLP in London, said in an e-mailed statement.

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The LCR would force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze. It’s a key component of a package of capital and liquidity measures, known as Basel III, drawn up to avoid a repeat of the 2008 financial crisis.

Basel III has been subject to mounting criticism for its complexity, amid delays to its implementation in the European Union and U.S.

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Under yesterday’s deal, banks would only have to meet 60 percent of the LCR obligations by 2015, and the full rule would be phased in annually through 2019, according to an e-mailed statement from the GHOS.

A sample of 209 banks assessed by the Basel committee had a collective shortfall of 1.8 trillion euros ($2.4 trillion) at the end of 2011 in the assets needed to meet the 2010 version of the LCR, according to figures published by the Basel group.

Banks had warned that the initial LCR proposal would force them to buy additional sovereign debt, more closely tying their fate to governments’ solvency. The 2010 rule was drafted before the EU was fully confronted by a sovereign debt crisis that challenged traditional assumptions about the creditworthiness of government bonds.

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The latest LCR rule retains the principle that banks may use sovereign debt to meet all of their LCR obligations, if the bonds are considered essentially risk free under international bank capital rules. The EU and U.S. have been criticized by international regulators for misapplying parts of the capital rules, allowing lenders to count more of the sovereign debt they hold as risk free.

Under the 2010 plan, banks would have been allowed to use cash and government bonds to meet the LCR, subject to some rules on the quality of the sovereign debt. Lenders could also have used highly-rated corporate debt or covered bonds to meet 40 percent of their LCR requirements.
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http://www.bloomberg.com/news/2013-...wn-liquidity-rule-after-basel-group-deal.html

A group of bankers meeting in Switzerland to decide the fate of the world's banks - who'd a thunk it?

Mathloom · Jan 8, 2013

It's funny how banks call this stuff "too complex" with a straight face, after they caused the "Western" economy to tank with complex monkey business.

Basel III is weak and late as is, the fact that anyone is opposing it is just adding insult to injury.

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Amid Fiscal Cliff, Banks Reprieved For 4-Years

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