International Regulators Ease Key New Regulation for Banks

International regulators have given banks an additional four years to increase the share of liquid assets on their balance sheets and have also eased the definition to facilitate lending to struggling economies.

The Basel Committee at the Bank for International Settlements (BIS) decided on Sunday to gradually introduce a regulation on the minimum share of the most liquid assets on banks’ balance sheets over a four-year period, starting in 2015.

The decision on stricter regulations was made to prevent a crisis similar to the one that shook international financial markets from 2007 to 2009, nearly blocking credit markets.

Banks are expected to start complying with the new regulation in 2015, when they should reach 60 percent of the prescribed minimum share of the most liquid assets. They should achieve full compliance by January 2019.

At the same time, the list of assets that can qualify as liquid has been expanded to include stocks, mortgage-backed securities, and corporate bonds with lower credit ratings.

New categories of less liquid assets can be included in the list only on the condition of significant write-downs of their nominal value, but the change in the definition of such assets still represents a significant concession by the committee.

The committee hopes that the amendments will deter banks from reducing lending to comply with the new regulation.

Banks have complained that they cannot comply with the new capital regulations while continuing to lend to businesses and consumers.

The committee unanimously adopted the amendments on Sunday after two years of arduous discussions.

The chairman of the Basel Committee, Stefan Ingves, who is also the governor of the Swedish central bank, stated that following the latest regulatory changes, the average compliance rate of liquid asset shares in the 200 largest banks in the world will rise to 125 percent, compared to the previous 105 percent.

Other banks, however, are significantly lagging behind, especially those in certain Eurozone countries. It is estimated that they will need to raise an additional €1 trillion in the coming years to comply with the tightened international regulations.