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Banks Permitted to Go Below Minimum Basel Liquidity Levels During Financial Crisis

January 09, 2012, 08:00 AM
Filed Under: Regulatory News

Bloomberg reported that banks will be allowed go below minimum liquidity levels set by global regulators during financial crises to avoid cash-flow difficulties.
As reported, the Basel Committee on Banking Supervision’s governing board said in a statement on its website yesterday, “During a period of stress, banks would be expected to use their pool of liquid assets, thereby temporarily falling below the minimum requirement.”

According to Bloomberg, the aim of the measure, known as a liquidity coverage ratio, is to ensure that lenders hold enough easy-to-sell assets to survive a 30-day credit squeeze. The requirement, one of several measures from the Basel group designed to prevent a repeat of the 2008 financial crisis, is scheduled to enter into force in 2015.
The report states that banks have argued that the rule may curtail loans by forcing them to hoard cash and buy government bonds. Global regulators said last year that they would amend the rule to address unintended consequences.

The Basel committee will provide further guidance on when lenders will be allowed to breach the minimum rule, and make sure the standard doesn’t interfere with central-bank policies, the group said.

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