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Bank regulators loosen up on liquidity rule
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Global banking regulators are meeting in Basel, Switzerland to loosen rules for what kind of assets banks must keep on their balance sheets in case of a crisis. The Basel Committee on Banking Supervision has decided riskier investments like mortgage backed securities and low grade corporate bonds can be used as part of a bank’s emergency buffer.
The buffer aims to make banks less vulnerable to a mass of customers moving to withdraw their money all at once, as happened in the lead up to the last financial crisis. Under the new rules, banks will have to hold enough cash and easy-to-sell assets to protect them over the course of a 30-day crisis. The original draft regulation limited these easy-to-sell assets to certain types of government and company bonds.
The BBC’s Economics Correspondent Andrew Walker in London says the eurozone crisis made the use of government debt look a bit questionable.
“Suppose you’re a bank, you have to raise a lot of money in a hurry. Is it really such a good thing to have a lot of, for example, Greek government bonds to sell. There’s a good case for saying that all kinds of other assets might be more useful,” says Walker.