Regulators ease liquidity rules

The Basel Committee on Banking Supervision, a global group of central bankers and regulators, has watered down draft rules on liquidity (the amount of cash and easy-to-sell assets banks must have on hand to cope with a fresh crisis).

Banks will be given an extra four years, to 2019, to meet the new requirements. The overall size of the buffer banks must hold has been reduced to 30 days of likely cash withdrawals, while the range of assets that count as liquid has been widened to include virtually all investment-grade corporate bonds and some equities.

What the commentators said

Given memories of the financial crisis, regulators loosening the rules “even a smidgeon is considered a huge giveaway”, said Andrew Ross Sorkin in The New York Times. However, the original rules were written in 2010, and back then analysts expected the global economy to be growing robustly by now. Making banks meet the stringent liquidity rules now would have implied a large reduction in lending, undermining growth.

The message here, agreed George Hay on, is that regulators, like politicians, “are terrified that GDP will not start growing strongly soon. They will bend on anything that might make it harder to lend.” Of course, if the real problem is that in a post-credit-bubble environment there is scant demand for loans, then lending, and growth, won’t get much of a boost.

Moreover, banks may well prefer to keep money aside to reduce their high interest rates for wholesale borrowing, as Nick Goodway pointed out in the Evening Standard. And they remain rattled by potential losses from current and any new loans. But in any case, said James Moore in The Independent, this tinkering with liquidity doesn’t change the “core problem” with the banks: five years after the meltdown, they are still too big to fail.

• See Tim Bennett’s take on why this is a bad thing here: Regulators just slapped a big sell signal on banks

MoneyWeek magazine

Latest issue:

Magazine cover
Mario Draghi's big gamble

The only European stocks to buy now

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 8 FREE Issues

Paul Hodges: house prices could fall 50% in 'Great Unwinding'

Merryn Somerset Webb interviews Paul Hodges about deflation, the global economy's 'Great Unwinding', and how Britain's house prices could halve.

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.

29 January 1886: Karl Benz patents the motor car

On this day in 1886 Karl Benz patented his Benz Patent-Motorwagen, with a new and revolutionary power source – the internal combustion engine.