WEGGIS, SWITZERLAND — Banks around the world will have more leeway in meeting new rules designed to prevent future financial crises, after a decision Sunday by a group of top central bankers and regulators who said they wanted to avoid restrictions that might damage the economic recovery.
Meeting in Basel, Switzerland, a committee that included Ben S. Bernanke, the chairman of the U.S. Federal Reserve, and Mario Draghi, the president of the European Central Bank, extended the transition period for the new rules, which are meant to make sure banks have enough liquid assets on hand to survive the kind of market chaos that followed the collapse of Lehman Brothers in 2008.
Besides extending the timetable, the panel — which also includes top bank regulators from 26 large countries — loosened the definition of what constitutes liquid assets. The decision takes some pressure off banks, which have complained that new guidelines will throttle lending and hurt economic growth.
Mervyn A. King, governor of the Bank of England and chairman of the group, said there was no intent to go easier on lenders. “Nobody set out to make it stronger or weaker,” he said of the rules during a conference call with reporter, “but to make it more realistic.”
Still, the decision, endorsed unanimously by participants, marked one of the first instances where the authors of the so-called Basel III rules have publicly conceded that the regulations could hurt growth if applied too rigorously.
“It’s a signal they are responding to some of the concerns of the banks,” said Harald Benink, a professor of banking and finance at Tilburg University in the Netherlands. He said the rules were stringent, and so adjustments were not necessarily a bad thing. But Mr. Benink said that he remains concerned that other key provisions of the Basel III rules are still not strict enough.
The rules are part of a new regime of banking regulations being drafted by the Basel Committee on Banking Supervision, named after the Swiss city where many of the discussions have taken place. The Basel rules are not binding on individual countries, but there is substantial international pressure for countries to comply.
The Basel Committee is overseen by the Group of Governors and Heads of Supervision, the organization that met Sunday.
Much of the debate so far has focused on increasing the amount of capital that banks hold in reserve to absorb losses, as part of a broad effort to make sure the world never has to endure another financial crisis like the one that has been under way since 2008.
The rules discussed Sunday are designed to address another weakness in the system — one that was exposed in the days after Lehman’s collapse in 2008. As trust among financial institutions evaporated and banks refused to lend to one another, many banks discovered that they did not have enough cash or readily salable assets to meet short-term obligations. In some cases, banks that were otherwise solvent faced collapse.
The rules require banks to have enough cash or liquid assets on hand to survive a 30-day crisis, like a run on deposits or a downgrade of their credit rating. They will take effect beginning Jan. 1, 2015, but be phased in more gradually than planned — and will not take full effect until Jan. 1, 2019.
This so-called liquidity coverage ratio also defines what qualifies as liquid assets. For example, the assets cannot be ones already pledged as collateral. And they must be under control of a bank’s central treasury, so it can act quickly to raise cash if needed.
On Sunday the central bankers and regulators broadened the definition of liquid assets. For example, banks will be allowed to use securities backed by mortgages to meet a portion of the requirement.
The vast majority of big banks already meet the requirements, but some do not, Mr. King said. The decision reduces pressure on those banks to hold more cash or buy high-quality government bonds to meet the rules on liquid assets.
Meeting in Basel, Switzerland, a committee that included Ben S. Bernanke, the chairman of the U.S. Federal Reserve, and Mario Draghi, the president of the European Central Bank, extended the transition period for the new rules, which are meant to make sure banks have enough liquid assets on hand to survive the kind of market chaos that followed the collapse of Lehman Brothers in 2008.
Besides extending the timetable, the panel — which also includes top bank regulators from 26 large countries — loosened the definition of what constitutes liquid assets. The decision takes some pressure off banks, which have complained that new guidelines will throttle lending and hurt economic growth.
Mervyn A. King, governor of the Bank of England and chairman of the group, said there was no intent to go easier on lenders. “Nobody set out to make it stronger or weaker,” he said of the rules during a conference call with reporter, “but to make it more realistic.”
Still, the decision, endorsed unanimously by participants, marked one of the first instances where the authors of the so-called Basel III rules have publicly conceded that the regulations could hurt growth if applied too rigorously.
“It’s a signal they are responding to some of the concerns of the banks,” said Harald Benink, a professor of banking and finance at Tilburg University in the Netherlands. He said the rules were stringent, and so adjustments were not necessarily a bad thing. But Mr. Benink said that he remains concerned that other key provisions of the Basel III rules are still not strict enough.
The rules are part of a new regime of banking regulations being drafted by the Basel Committee on Banking Supervision, named after the Swiss city where many of the discussions have taken place. The Basel rules are not binding on individual countries, but there is substantial international pressure for countries to comply.
The Basel Committee is overseen by the Group of Governors and Heads of Supervision, the organization that met Sunday.
Much of the debate so far has focused on increasing the amount of capital that banks hold in reserve to absorb losses, as part of a broad effort to make sure the world never has to endure another financial crisis like the one that has been under way since 2008.
The rules discussed Sunday are designed to address another weakness in the system — one that was exposed in the days after Lehman’s collapse in 2008. As trust among financial institutions evaporated and banks refused to lend to one another, many banks discovered that they did not have enough cash or readily salable assets to meet short-term obligations. In some cases, banks that were otherwise solvent faced collapse.
The rules require banks to have enough cash or liquid assets on hand to survive a 30-day crisis, like a run on deposits or a downgrade of their credit rating. They will take effect beginning Jan. 1, 2015, but be phased in more gradually than planned — and will not take full effect until Jan. 1, 2019.
This so-called liquidity coverage ratio also defines what qualifies as liquid assets. For example, the assets cannot be ones already pledged as collateral. And they must be under control of a bank’s central treasury, so it can act quickly to raise cash if needed.
On Sunday the central bankers and regulators broadened the definition of liquid assets. For example, banks will be allowed to use securities backed by mortgages to meet a portion of the requirement.
The vast majority of big banks already meet the requirements, but some do not, Mr. King said. The decision reduces pressure on those banks to hold more cash or buy high-quality government bonds to meet the rules on liquid assets.