LONDON Bank will get more time and leeway to introduce new global capital rules but calls to lend more freely may be harder to resist as a result and the new regime will still be far tougher than anything that exists now.
Central banks governors and heads of supervision published changes to the draft Basel III accord late on Monday, sparking rises in European banking shares and a collective sigh of relief when markets reopened on Tuesday.
The less draconian treatment of deferred tax assets and affiliates for calculating capital, a long phase in for new liquidity rules and a cap on debt will ease pressure on banks to raise vast amounts of funds or sell off minority stakes.
The way in which a capital charge is slapped on a bank's exposures to other banks' credit risks will also be calculated more leniently, taking pressure off capital requirements.
"There are some wins for us here -- the more sensible treatment of minority interests and deferred tax assets, and recognition they have to do more work on the liquidity side of things," said Simon Hills, a director of the British Bankers' Association.
"It introduces an element of certainty. One of the concerns we have had is while this was up in the air, we were unable to plan the shape of our balance sheet," Hills said.
Credit Suisse said coupled with last week's "credible" stress test of European banks, the Basel changes should fuel a continuation of the sector's bounce by removing uncertainties.
Investors won't know the full impact of Basel III until later in the year when the Basel Committee completes the picture with a figure for a higher Tier 1 capital ratio and details of how long banks have to ditch lower quality capital from their capital calculations.
Here the regulators will have to heed a deal cut by the Group of 20 leading countries last month to have a longer phase in than the original end of 2012 deadline for Basel III.
"There will be a gradual migration so industry can get there through retained earnings and reasonable capital raising," Basel Committee Secretary General Stefan Walter said.
Experts said fears the more lenient approach may compromise the main goal -- to prevent a new financial crisis following the credit crunch that started in 2007 -- were probably overdone.
Most of the Basel III elements are new at the global level -- such as a tighter definition of top quality capital, liquidity rules and a cap on debt -- and will therefore still be a big tightening on the present situation despite this week's tweaks to the committee's original plan.
"There is some relief for the sector on timing but regulatory pressure remains significant," said Execution Noble analysts.
And there will certainly be more pressure for banks to lend.
David Clark, chairman of the Wholesale Markets Brokers Association said banks would have fewer excuses not to help businesses. "There is going to be a political consequence of all this. The banks will now be under a lot more moral pressure to lend," he said.
Basel III originally proposed a ban on banks counting capital held in affiliates as part of their own holdings. This triggered fears of a freeze in acquisition of minority stakes or sell-offs to avoid the need for extra capital.
Banks will now be able to include capital from minority-held companies up to a certain threshold. Morgan Stanley said this may be enough to allow Barclays (BARC.L) to hold onto its stake in BlackRock, the world's largest money management firm.
French, Nordic and Italian banks should also benefit.
The Basel package also includes a proposal to ensure a bank has enough long-term liquidity, known as the net stable funding ratio, which has now been diluted so that it won't take full effect until the start of 2018, five years later than expected.
"There will be a long phase in rather than immediate implementation but some people had thought it was going to be scrapped altogether," said Andrew Lim, an analyst at Matrix.
Credit Suisse said the revised NSFR proposal was likely to help the credit market improve as it removes a significant amount of supply.
Morgan Stanley warned in January the original proposal would require 1.5 trillion euros of funding and analysts said the changes announced on Monday will benefit banks like Britain's Lloyds (LLOY.L) and those in France and the Nordic countries.
Basel originally wanted only government bonds included in a bank's planned new short-term liquidity buffer but this has now been broadened out, drawing a lesson from Europe's sovereign debt crisis where ratings on Greek debt were cut to junk.
Now, some top rated corporate debt can be included.
This will be particularly welcomed in countries like Australia whose strong public finances mean there is not enough government debt for local banks to buy for buffer building.
Using derivatives contracts will, however, become more expensive after Basel announced a surprise toughening up of capital charges on contracts cleared at central counterparties.
The industry had hoped the existing zero charge would remain and now worry Basel will slap much higher-than-expected charges on uncleared contracts used by companies to hedge risks like adverse currency or raw materials price moves.
LEVERAGE, COUNTERPARTY RISK
Basel announced its planned new leverage ratio or cap on debt will be pegged at 3 percent -- not as high as banks had feared and a level that wholesale banks are already above, Morgan Stanley said.
It will not be a mandatory standard until the start of 2018, far later than foreseen.
Basel's easing in the way capital charges on a bank's exposure to risks at other banks is calculated is also welcome and now more aligned with what leading banks are already doing, the BBA's Hills said.
But it may not be all good for banks.
"We think Basel III delay will also mean the odds of unlevel playing field between US, Swiss, UK, Eurozone is even higher, which will provide regulatory arbitrage opportunities and disadvantages for some," Morgan Stanley said.
(Reporting by Huw Jones, editing by Mike Peacock)