Banks Buy Time to Meet New Capital Requirements
January 8th, 2013
Five years after the financial meltdown triggered by the bankruptcy of Lehman Brothers investment bank, credit remains blocked in many Western economies, fuelling a second wave of recessions. This situation, as well as the precarious financial condition of several European states, impelled the World Bank to fight for a less strict application of the new rules of supervision over the sector. According to the latest decision by the main central banks on liquidity requirements, this has been a success.
The banking supervisors, integrated in the Basel Committee, announced on Sunday that these new liquidity requirements, which were to take effect in 2016, are now to be introduced gradually over four years until 2019. The package of measures known as Basel III, which also includes more stringent requirements on minimum capital levels, retains the idea of obliging the bank, for the first time, to maintain sufficient liquid assets (money, or those which can easily be sold in the markets) to weather crisis situations, levels which are determined from similar stress tests worldwide.
In addition to giving more time to the banks, El Pais reported that the supervisors have also extended the type of assets that can count towards these minimum levels of liquidity. The original proposal included only money, government bonds and the most creditworthy corporate debt securities with the highest credit ratings. They have now included lower-rated securities, equities and mortgage bonds.