The Basel Committee Has a New Rulebook
While there’s a loosening on one end, there’s a tightening on the other for the world’s largest banks. Since the financial crisis began in 2007, regulators have been implementing new rules with aims to prevent similar crises, and a new set of principles devised by the Basel Committee could help.
Recently, regulators have cut banks a little slack on where they obtain liquid assets to create a buffer in the event of another crisis. The new rule will allow banks to use a wider range of assets, such as shares, lower-rated company bonds, and retail mortgage-backed securities. The rule will now be phased in over four years from 2015, instead of fully taking effect in 2015, allowing banks both time and leeway to prepare themselves. The relaxing of the rule was aimed to prevent banks from withholding credit to businesses and consumers, as banks had said they wouldn’t be able to meet deadlines and continue to offer such credit.
While the Basel Committee relaxes one rule, it tightens another.
Though the aforementioned rule will essentially give banks until 2019 to finish complying with the new — and first-ever — “global minimum standard for bank liquidity,”s a second rule will give them only 3 years to assess and report all their risk exposures. The rule, pertaining specifically to globally, systemically important banks, will ensure that there is a clear image of the risks banks are facing. Previously, such an image was hard to come by quickly, as branches and subsidiaries around the world made it harder for a bank to create a single, clear picture of the risks it faced.
The new sets of rules from the Basel Committee are expected to help prevent future banking crises by having a clear and complete analysis of the risk big banks face, and also by ensuring banks have enough liquid assets to cover themselves if problems do arise. The primary concern addressed by the rules is seeing that taxpayers are no longer burdened by the risks and mistakes of big banks.