September 14, 2012

Banks will get some relief from a new rule forcing them to hold cash buffers, although global regulators were unable to agree this week how that might be achieved, two people familiar with the talks said on Friday,

The Basel Committee on Banking Supervision, which represents nearly all the world's banking sector, met in Istanbul to seek a deal on the planned liquidity coverage ratio (LCR) which becomes mandatory from 2015.

Banks would have to hold a buffer of easily sellable assets such as highly-rated government and corporate debt to last a month in rocky financial markets so that taxpayers did not have to step in again with bailouts.

"There will be an LCR package by the end of the year that implies selective relief for the banks but we cannot quantify the impact yet," one of the sources said.

There are clashes among the Basel members over how much relief to give banks during tough economic conditions, what other assets would be eligible for inclusion in the buffer and how far to go in easing basic assumptions used to calculate the size of the buffer.

Basel Committee chairman Stefan Ingves said on Thursday talks were on track to deliver any revision of the LCR by the end of the year.

Lenders say that faced with having to hold more capital as well as a sluggish economy, the liquidity rule must be relaxed or delayed otherwise they won't be able to keep lending.

Banks are keen to see the detail of the LCR as quickly as possible as although it won't be mandatory until 2015, they will have to start reporting on liquidity from January as part of an observation period to feed into any last minute tweaks.

(Reporting by Alexander Huebner in Frankfurt and Huw Jones in London; Editing by Mark Potter)

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