Brussels: Bank regulators published details of an overhaul of liquidity and capital rules for lenders to allow markets to make more thorough assessments of how well financial companies will cope with the new requirements.
Lenders would have needed €602 billion (Rs 36.2 trillion) to comply with the rules if they were in place at the end of last year, Basel Committee on Banking Supervision said.
Banks would also have had shortfalls, including a €2.89 trillion gap in stable funding, necessary to meet separate liquidity requirements.
The committee agreed in July to phase in the requirements up to 1 January 2019 to mitigate their impact.
Regulators are overhauling bank capital and liquidity requirements because existing rules, known as Basel II, failed to protect lenders from insolvency during the financial crisis.
The main elements of the overhaul were approved by leaders of the Group of Twenty (G20) countries last month.
“The transition period provides banks with ample time to move to the new standards in a manner consistent with a sound economic recovery,” Nout Wellink, chairman of the Basel committee, said in a statement on the group’s website.
The Basel committee said the €602 billion would have been needed for banks to cope with a requirement to hold core capital equivalent to 7% of their assets, with these assets weighted according to their riskiness.
The figure has been calculated by regulators based on data collected from 263 banks.
Banks that do not meet the requirement will face restrictions on paying dividends, regulators said in September.
Banks would also have failed at the end of 2009 to meet new rules on bank liquidity that have been drawn up by the Basel committee, the group said.
Banks that fail the minimum liquidity requirements could meet them by lengthening the term of their funding or restructuring business models, the Basel committee said.
The committee plans to introduce the liquidity rules between 2015 and 2018.
“The new rules are a landmark achievement that will help protect financial stability and promote sustainable economic growth,” Wellink said.
Internationally active banks with more than 3 billion euros in Tier I capital, a broader measure of banks’ reserves, would have needed an additional 577 billion euros of core capital to satisfy the rules, while other banks surveyed would have needed 25 billion euros, the Basel committee said.
The 2.89 trillion euro gap is the group’s calculation of banks’ liquidity shortfall against a so-called net stable funding ratio.
That ratio, scheduled to be put in place in 2018, aims to limit the mismatch between the duration of loans and deposits, to ensure that banks don’t face cash flow problems.
Lenders at the end of 2009 would also have had a shortfall of 1.73 trillion euros in the assets necessary to meet a separate liquidity coverage ratio, which will measure banks’ ability to survive a 30-day credit crunch. That ratio is scheduled to be effective from 2015.
The actual impact of the new Basel requirements by the time they are implemented will likely be lower as the banking sector adjusts to a changing economic and regulatory environment, the committee said in its impact report.
The results do not consider banks’ profitability or make any assumptions about banks’ behavioural responses, the report said.
The Basel committee published a text clarifying the details of the regulatory overhaul. As well as revised rules on capital and liquidity, the overhaul also includes a limit on banks’ borrowings.
The Basel committee brings together regulators from 27 countries including Brazil, China, India, Germany the UK and the US.