What Fears Do Banks Have With Basel III?
After some regulators and banks expressed fears that new rules could lock up too much liquidity, the Basel Committee, which is comprised of banking supervisors from close to 30 countries, may decide to give financial institutions more time to increase their cash reserves.
A European regulatory source told Reuters that the banking committee is expected to announce a revision to the “liquidity coverage” ratio, or LCR, on Sunday. The regulation mandates that banks maintain enough liquid assets to cover one month of net outflows and were agreed upon to prevent banks from needing taxpayer aid during crises.
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While banks were required to comply with LCR by 2015, the preparation period could be extended as financial institutions — including JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS), and Deutsche Bank (NYSE:DB) — worry that the economy is still too weak for such a measure. According the publication, banks believe that the original time frame would limit the availability of liquid assets at a point when a “ready supply of credit is needed to finance growth.”
Under the Basel III rules, liquidity requirements mirror similar capital provisions. “In principle, there will be a phase-in similar to what we have for capital requirements,” said the regulatory source anonymously. “There is no reason to treat liquidity differently from capital.”
The LCR is part of the Basel III bank capital and liquidity accord that was agreed upon by 27 nations in 2010 and which will be implemented over the next six years, beginning this month.
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