Deadline for Banks to comply with Basel-III relaxed, liquid asset definition made flexible

The Basel Committee has extended the deadline given to banks around the world to comply with Basel-III norms has been deferred for 4 more years to January 2019 against the previous deadline of January 2015. Basel-III sets global minimum standards for banks and proposes for minimum holding of cash and liquid assets by banks in order to make them financially sound against the possibility of another financial crisis to the scale of Lehman Brothers in 2008 and to avoid the situation where in the taxpayers have to bail out the cash-strapped banks. The definition of liquid assets has also been made flexible to include shares, retail mortgage-backed securities (RMBS) and lower-rated company bonds. However, the less liquid assets could be considered as buffer assets at a heavy discount to their value.

Why this extension?

The Banks around the world have complained of inability to meet the deadline as the guidelines could obstruct lending and damage economic growth. As per new norms, the banks have to phase in the compliance in 2015 and are expected to meet at least 60 % of the total buffer assets by then. They are required to meet 100% of the "liquidity coverage ratio" by January 2019 to survive an acute 30-day crisis. The new rules have put the buffer assets of world’s top 200 banks to 125 % from the current 105%, well above what is required for full compliance.

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Month: Current Affairs - January, 2013