New capital, liquidity regulations proposed by Basel committee

MANILA, Philippines - The Basel Committee on Banking Supervision approved for consultation this month a package of proposals to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector.

Comments on the consultative documents should be submitted by April 2010, and the measures would likely be put in force by 2012.

Along with the measures taken by the Committee in July 2009 to strengthen the Basel II Framework, the proposals are part of the Committee’s comprehensive response to address the lessons of the crisis related to the regulation, supervision and risk management of global banks.

These reforms carry forward the September 2009 mandate of the Governors and Heads of Supervision, the oversight body of the Basel Committee. The reform program has also been endorsed by the Financial Stability Board and by the G20 leaders at their Pittsburgh Summit.

Basel Committee chairman and president of the Netherlands Bank Nout Wellink, said that the capital and liquidity proposals will result in more resilient banks and a sounder banking and financial system.

“They will promote a better balance between financial innovation and sustainable growth,” Wellink said in a press statement.

The consultative documents cover the key areas for: raising the quality, consistency and transparency of the capital base; strengthening the risk coverage of the capital framework; introducing a leverage ratio as a supplementary measure to the Basel II risk-based framework with a view to migrating to a Pillar 1 treatment based on appropriate review and calibration; introducing a series of measures to promote the build-up of capital buffers in good times that can be drawn upon in periods of stress; and introducing a global minimum liquidity standard for internationally active banks that includes a 30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio.

The Committee is mindful of the need to introduce these measures in a manner that raises the resilience of the banking sector over the longer term, while avoiding negative effects on bank lending activity that could impair the economic recovery. It is initiating a comprehensive impact assessment of the capital and liquidity standards proposed in the consultative documents.

Wellink stressed that “decisions on the final proposals and their calibration will be made only after a thorough analysis of the impact assessment and the comments received on the consultative documents. The Committee will ensure that implementation of the new standards is consistent with financial market stability and sustainable economic growth.”