Basel-III: Banks Get More Time and Flexibility for Basel-III Compliance, Banks get four more years for full compliance.
Banks around the world have received a breather from the global banking regulators as they relaxed a deadline to become Basel-III compliant, a rule which stipulates minimum holding of cash and liquid assets.
Chiefs of central bank gave lenders four more years to meet international liquidity requirements and watered down the measures in a bid to stave off another credit crunch.
Banks won the delay to fully meet the so-called Liquidity Coverage Ratio (LCR) following a deal struck by regulatory chiefs meeting on January 7, 2013 in Basel, Switzerland. They’ll be able to pick from a longer list of approved assets including equities and securitised mortgage debt as they seek to build up buffers of liquidity for use in a financial crisis.
The Basel Committee has agreed to ease a new rule forcing banks to build cash buffers to protect against any month-long market squeeze. The Liquidity Coverage Ratio (LCR) rule is one of the world’s main regulatory responses to the financial crisis. Here’s what the main changes are:
COMPLIANCE: Instead of full compliance in January 2015, banks will have to hold only 60 per cent of their buffer by then, rising 10 per cent annually thereafter to full compliance by January 2019.
ELIGIBLE ASSETS: The list of assets eligible for inclusion is widened from highly rated government and corporate debt to include retail mortgage backed securities, lower rated corporate debt and shares. New inclusions face a 25 to 50 per cent discount.
BUFFER COMPOSITION: At least 60 per cent of the buffer must still be in highly-rated government debt and the newly eligible assets cannot count for more than 15 per cent of the overall buffer.
SIZE OF BUFFER: The stress scenario a bank must use to determine the size of its buffer, aimed at keeping the bank funded for 30 days in a squeeze, is eased, meaning the overall buffer will be smaller.
LIQUIDITY: Explicit acknowledgement that the liquidity buffer can be tapped to below minimum levels in times of stress, even during the phase-in period, a provision aimed at helping banks in stressed Euro zone countries in particular.