LONDON Global regulators will make it easier for lenders to feed credit to the economy by relaxing a new rule on Sunday designed to limit risk on banks balance sheets, regulatory and banking industry sources said.
The rule is among the final elements of a global accord on bank capital, known as Basel III, which forms the world's core regulatory response to the 2007-09 financial crisis that saw undercapitalized lenders being rescued by taxpayers.
Central bankers from the Group of 20 leading economies and other countries will meet in Basel, Switzerland to endorse the final version of the so-called leverage ratio that banks will have to comply with from January 2018.
It measures a bank's capital against all of its assets, such as loans, without adjusting them for risk, and acts as a backstop to a lender's core risk-weighted capital requirements.
It has been set at 3 percent, meaning a bank must hold capital equivalent to 3 percent of its total assets.
Reuters reported on December 3 the rule will be eased after complaints from banks that the draft version was too harsh in the way it forced lenders to add up derivatives positions on a gross basis.
This would mean, for example, U.S. banks like Morgan Stanley (MS.N) or Goldman Sachs (GS.N) losing the benefit they have under U.S. accounting rules from totting up derivatives on a smaller, netted basis.
"Banks will be able to net short-term financing transactions to have the benefits of netting. It will have a significant impact," a European banking industry official said on condition of anonymity ahead of the announcement by the Group of Governors and Heads of Supervision (GHOS).
If all assets were treated equally, banks may be tempted to ditch some loans or stop providing new ones. Central bank reserves held by banks could also be excluded from leverage ratio exposures calculations.
GHOS, chaired by European Central Bank President Mario Draghi, is the body that oversees the Basel Committee, the collection of banking supervisors from across the world who write bank capital standards.
The anticipated easing of the leverage rule follows a decision by Basel to scale back its bank liquidity rule to reflect a shift in focus by politicians from cracking down hard on banks to encouraging more credit to aid economic recovery.
The GHOS is set to revise for public consultation a rule known as a net stable funding ratio or NSFR.
From the start of 2018 this rule will force lenders to hold enough liquidity to cover longer term liabilities held by the bank to limit dependence on short-term funding.
The banking industry official expects the revision to ease the way the rule treats mortgages, an issue seen of particular interest to Australia and South Africa.
(Reporting by Huw Jones; Editing by Elaine Hardcastle)