More than two years ago, I wrote about the new Basel III liquidity standards.1 One of the new requirements was the imposition of a "liquidity coverage ratio," or LCR, aimed at making sure that banks had sufficient liquid assets for 30 days to cope with a severe liquidity crisis.2 In January of this year, after protests from the banking industry that the LCR would hamper banks’ ability to make loans and adversely affect their bottom lines, the Basel Committee of the Bank for International Settlements revised the standards to allow more time to come into compliance and broadened the categories of assets that would qualify to be considered as liquid assets eligible for the LCR.3 This month’s column will discuss highlights of the revised standards.
A Little History
First, to go back to December 2010, when the final text of the rules was issued by the Basel Committee, a committee of international banking regulators that develops international banking standards, the original purpose was to increase a bank’s resilience in the event of a liquidity "stress event."
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