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Basel body waters down bank liquidity rules

Banks have been given more time and more leeway to shore up their balance sheets with real assets and thus guarantee liquidity in times of crisis. The Basel Committee on Banking Supervision announced the changes.

Banks now have until 2019 to reach the desired so-called "liquidity coverage ratio" (LCR) that they will be expected to hold in reserve to stave off financial collapses similar to the 2008 downturn that put US bank Lehman Brothers out of business.

The new rules will come into effect on January 1, 2015 as planned, but in the early stages, lenders will only need to prove they hold 60 percent of the required ratio.

By 2019, all banks should hold enough cash and assets that would be easy to sell to tide them over for 30 days of operation with no new financial input - a figure that varies from bank to bank.

The Basel Committee on Banking Supervision also announced on Sunday that more assets than previously planned would be considered "liquid" - now including corporate bonds, some shares and securities held against high-quality residential mortgages. The lion's share of the figure, however, must be either in cash, top-rated government bonds or other Central Bank-issued papers.

Mervyn King, the governor of the Bank of England who is also in charge of overseeing the Basel committee, said the new timeframe was designed to make sure the new rules "will in no way hinder the ability of the global banking system to finance the recovery."

The Basel Committee on Banking Supervision is a group made up of financial industry regulators from 27 countries. According to a study by the committee at the end of 2011, most major banks already held far more than the 60 percent of their LCR they would now need starting in 2015. The bar would subsequently be raised by 10 percent each year, therefore reaching the full tally by 2019.

Banks had labeled the previous plan too strict. A study published in 2012 by a financial offshoot of the Frankfurter Allgemeine Zeitung daily paper found that 61 percent of the bankers questioned thought the plan less effective than existing German rules.

The idea of the LCR and other elements of a package often called Basel III is to ensure banks can get by without help from central banks, which can print money and lower interest rates in times of financial strife.

msh/dr (AFP, AP, dpa, Reuters)