New bank cash buffer rule sees further delay

LONDON Tue Nov 6, 2012 9:30am EST

LONDON Nov 6 (Reuters) - New rules forcing banks to hold cash buffers to withstand market shocks from 2015 won't be ready until early next year or later, a top regulator said, giving banks less time to raise the trillions of dollars they are likely to need.

The Basel III global accord requiring banks to hold more capital and liquidity starts a six-year phase in from January.

The Basel Committee on Banking Supervision, which wrote the accord, had previously signalled the rules would be ready by December, giving banks more time to raise an estimated $4.4 trillion.

Under the rules, banks will have to hold a buffer of largely highly-rated government debt, the rest in corporate bonds or cash for use if market funding suddenly dries up - as it did in the 2007 credit crunch, forcing central banks to step in.

But the liquidity buffer has proved contentious, with banks and some governments fearing it will divert money that could be better used to help the wider economy.

Banks want a wider variety of assets to be eligible for inclusion in the buffer, and for the "stress scenario" to calculate the buffer's size to be eased.

Agreeing tweaks to the liquidity rule is taking time.

"We are working towards being able to announce the final form of the Liquidity Coverage Ratio (LCR) in the first part of 2013," Basel Committee Secretary General Wayne Byres said in a speech on Tuesday.

The second element of the buffer, to cover cash demands of a year or more, "will take longer", Byres said.

Britain moved early to force its banks to build up liquidity buffers but has now allowed them to be trimmed if the freed up money is lent to businesses.

The European Union and United States have yet to put in place formal rules to apply Basel III from January though many banks already meet the requirements in full.

"Therefore, the arrival of Basel III is more of a 'hasten slowly' approach than any kind of 'big bang' change," Byres said.

Basel III on its own won't be enough to ensure financial stability and the committee is working on reinforcing several elements, Byres added.

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