Banks have won a significant concession from global regulators after being granted four more years to introduce measures that will make them less vulnerable to Northern Rock-style runs and financial shocks.
The Basel committee of banking supervisors has also relaxed proposals on the range of assets that banks must hold as a buffer against the threat of a collapse. Mervyn King, the governor of the Bank of England and chair of the committee's oversight body, said: "For the first time in regulatory history, we have a truly global minimum standard for bank liquidity."
The standards are intended to allow a bank to survive a 30-day crisis by requiring a minimum number of assets that can be sold quickly to raise cash, as an insurance against the mass withdrawal of deposits and funding freeze that crippled Northern Rock, or a systemic crisis of the kind triggered by the Lehman Brothers collapse.
The new rules will not be imposed in January 2015, as had been intended under an earlier draft, but will instead be phased in over four years by 2019. King indicated that the concessions would allow banks to use their reserves to help struggling economies grow, rather than have them tied up in meeting the new global banking guidelines, dubbed Basel III.
"Importantly, introducing a phased timetable for the introduction of the liquidity coverage ratio … will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery," he said.
The Basel group includes representatives from the 27 major financial centres – including the UK, Japan, China and the US – and it had agreed a first draft of liquidity rules in 2010. The draft triggered fierce lobbying by the banking community, because it required the buffers to comprise government bonds and the highest grade of corporate bonds.
Banks warned that it might choke off a global economic recovery by squeezing lending to households and businesses. They added that focusing the buffers on government bonds would force them to buy even more sovereign debt, tying their fortunes more closely to a state's solvency – a concern exacerbated by the mounting eurozone crisis.
King said the new liquidity coverage ratio, or LCR, was now more "realistic", although he denied that the changes represented a weakening of the proposals.
He added that the agreement would protect taxpayers from the consequences of a banking crisis, saying that it was a "clear commitment to ensure that banks hold sufficient liquid assets to prevent central banks from becoming lenders of first resort".
Under the terms of the deal banks will only have to meet 60% of the LCR obligations by 2015.
King added: "The committee and the regulatory community more generally felt it was appropriate to broaden the class of liquid assets. That doesn't mean to say it's a loosening of the whole regime."
Simon Hills, executive director of the British Bankers' Association, said allowing mortgage-backed securities in the liquidity buffer would help kick-start that particular market, which has been moribund since it played a significant role in the 2007-2009 crisis.
"It will make a real difference to issuance volumes by improving their marketability so that banks are better able to manage their balance sheets and provide funding to the real economy," he said.
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