Banking Crisis

Global Banks Ease Basel Rules To Ease Strains

Tom Burroughes, Group Editor, 8 January 2013

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International bank capital and liquidity rules agreed by global regulators
– often cited by private banks seeking to impress clients with their financial strength
– have been made more flexible to encourage lending and hence economic growth,
media reports said.

At the weekend, global regulators meeting at the Bank for International Settlements gave banks four more years
and more flexibility on their “buffer capital”, reversing a move towards a more
cautious stance in recent years in the wake of the 2008 financial crisis.

The complex web of standards known as “Basel rules” has been criticised for making
the economic cycle, and associated strains on banks, worse rather than less
severe because, in the past, the system has worked so that banks have thin
capital buffers when economies are strong and suddenly scramble to expand
capital when markets turn more volatile.

One specific aspect of the rules is what is known as the "liquidity
coverage ratio". This relates to the requirement on banks to hold an
amount of
highly-liquid assets, such as cash or Treasury bonds, equal to or
greater than their net cash over a 30 day period (having at least 100
per cent
coverage).

"The LCR will be introduced as planned on 1 January 2015, but the minimum
requirement will begin at 60 per cent, rising in equal annual steps of
10 percentage points to reach 100 per cent on 1 January 2019. This graduated
approach is designed to ensure that the LCR can be introduced without
disruption to the orderly strengthening of banking systems or the
ongoing financing of economic activity," BIS said in a statement.

In recent years, those private banks that have high capital
ratios, or are part of firms with such ratios, have been keen to stress that
fact when speaking to this publication, reflecting how high net worth
individuals have increasingly focused on the strength of a financial
institution as a reason for choosing to do business with it. The overall size
of a private bank is seen as less
important than the financial robustness of an institution.

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