The Basel Committee On Banking Supervision have reached agreement that banks will have up to 2015 to completely put in place the new rules for the amount of cash and liquid assets and securities they can hold to protect against a funding shortage in case of another financial crisis.
The new rules are part of a larger overhaul of the banking system in the EU which the Basel Committee has been working on to try and prevent a recurrence of the financial crisis. On the stock market, European banks rallied after the committee also said that is would review the rules it has set to ensure they are not too stringent.
“The committee is confirming that it’s backing away from implementing a stringent liquidity rule in the foreseeable future. If the initial proposals had been adopted, it would have been very difficult for many European banks to sustain the size of their balance sheets and therefore their current business models,” said banking analyst Carlos Egea, from London’s Morgan Stanley.
The rules for liquidity and cash will begin phase-in in early 2011 and will fully take effect by 2015, with a period of observation. The regulators have not specified a liquidity ratio, however.
The new liquidity standard is aimed at prevent banks from becoming insolvent during the event of a 30-day shock to the market and regulators will begin to determine how it should be implemented next year.
The Basel Committee is the global standard-setter in financial regulations.
