The Group of Governors and Heads of Supervision, which oversees the Basel Committee on Banking Supervision, recently endorsed the committee’s amendments to the Liquidity Coverage Ratio.
The LCR will be implemented starting in 2015, but the minimum requirement will be increased incrementally by ten percentage points per year from an initial 60 percent to 100 percent at the beginning of January 1, 2019, MNI reports.
The board said that banks could reasonably, under supervision, draw on stocks of high-quality liquid assets during times of stress, even if it meant falling below the minimum.
Basel Committee Chairman Stefan Ingves, who also heads Sweden’s Riksbank, said that “the amendments to the LCR are designed to ensure that it provides a sound minimum standard for bank liquidity—a standard that reflects actual experience during times of stress,” according to MNI.
The GHOS also said that, as central bank deposits are sometimes the most or only reliable form of liquidity, the relationship between the LCR and provision of central bank committees is critical.
Mervyn King, the chairman of GHOS and governor of the Bank of England, said that a number of banks are already in compliance with the LCR because many banks have abundant liquid assets resulting from the policies of central banks.
“So for most banks, it is hardly surprising that they are above the ratio,” King said, MNI reports. “Hopefully, in the not-too-distant future, we will be getting back to a more normal world in which they will have to find liquid assets other than central bank reserves.”