In a recent report carried by Fox Business, it appears that the Basel Committee is going to reevaluate one of its most recent, and judicious, regulatory provisions.
For those unfamiliar with the Basel Committee on Banking Supervision (BCBS), it is a group made up of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1975.
Their stated objective is to “enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.” (Whether or not that is being effectively accomplished is up for debate).
The Committee also frames guidelines and standards in different areas—some of the better known among them are the international standards on capital competencies, the “Core Principles for Effective Banking Supervision” and the Concordat on intercontinental and international banking supervision.
The Committee is “global” in that it boasts of memberships from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.
With their credo clearly stated (and with an idea of the number of stakeholder’s involved), we are brought back to the initial report of their seemingly imprudent decision reversal.
Recently, because of a manifestly weak global economy, the Basel Committee convened to discuss what actions should be taken to help undo the damage done and how to best prevent it from happening again. They came up with Basel III, a new global regulatory standard on bank capital “adequacy” and liquidity.
The idea is that Basel III will strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and bank leverage. These new regulations would make the bank’s dealings with investors and consumers safer than it has been in past years.
However, there is one regulatory provision that they intended to impose on the banks that they are now looking to undo. They may soften the technical definitions in the "liquidity coverage ratio," which essentially requires banks globally to hold enough assets to withstand a 30-day run on their funding, the Financial Times reported Monday citing people familiar with the discussions.
Sounds like a good idea, right? Banks should hold enough assets that, in the event of a crisis, they have a 30-day window in which they can properly address the issue(s).
Instead, banks have complained loudly that the new Basel III standards on liquidity, to be implemented in 2015, would force them to sharply curtail lending to consumers and businesses.
Now the council is thinking of abandoning the idea.
So instead of only working with what they have, the banks have clearly stated that they would like to continue using what they do not have so that they can keep lending to businesses and consumers.
What could possibly go wrong?