The Basel Committee on Banking Supervision is considering reining in some of the proposed alterations to the leverage ratio, which is part of the Basel III rules, sources said. The global regulatory body might allow cash collateral to be used to reduce derivatives exposure and might soften repo treatments, the sources said.
The Basel Committee on Banking Supervision's decision to give global banks an additional four years to meet liquidity requirements was aimed at ensuring the change wouldn't discourage lending to the real economy. Some banks have already benefited from the revision, with their share prices increasing. However, the move could prove costly for financial institutions, analysts say.
During the past year, regulators have clashed publicly and privately over harmonizing rules from different countries. In 2013, it will be crucial for negotiators to establish a framework to resolve extraterritoriality issues concerning areas including derivatives trading and capital requirements, Michelle Price writes.
The Basel Committee on Banking Supervision has granted a four-year reprieve and phase-in period for its liquidity-coverage ratio, a step that banks had argued was necessary to sustain lending. Originally, banks were required to have in 2015 sufficient liquid assets to cover expected outflow over 30 days. The date for that has been changed to Jan. 1, 2019, with banks needing to show a 60% ratio in 2015.
Europe's largest banks are expected to continue deleveraging balance sheets in 2013. Consequently, investment bankers do not anticipate much debt issuance from the financial-services sector. Debt securities issued by banks in 2012 declined 7% compared with 2011, according to Dealogic. Sebastien Domanico of Societe Generale says banks have reduced balance sheets on average about 30% during the past three years.