Basel Committee eases tough rules on bank liquidity

Jan 7, 2013

Corporate IOUs and even some mortgage-backed securities will be counted as liquid assets

ORLD banking chiefs have given the financial sector a late Christmas present by easing tough new rules designed to prevent another credit crunch, according to the BBC.

The new rules, due to start coming into force in 2015, say banks must keep enough cash on hand to tide them over a 30 day crisis. But the Basel Committee on Banking Supervision has said that new classes of asset will be counted towards liquid funds, including some shares, corporate IOUs and even high quality mortgage-backed securities.

The new rules will also give financial companies more time to comply with the rules.

The credit crunch was triggered when banks including Britain's collapsed Northern Rock and America's giant Lehman Brothers were unable to deal with pressure from a relatively small number of customers to withdraw cash.

 Banking chiefs warned two years ago when the draft rules were published that they were too stringent and could greatly damage banks ability to power world economic growth.

The Basel Committee is a network of 27 of the world's central banks and is chaired by Bank of England chief Mervyn King.

The BBC's business editor Robert Peston says one oddity is that many banks at the moment are more than meeting the rules because governments have been printing money and lending it cheaply to banks.

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