An Industry Win Over Liquidity Buffers

Chalk up a victory for the financial services industry last weekend in its resistance to higher capital requirements under Basel III. Institutions would still have to maintain significant buffers to prevent another round of government bailouts, but they could dip into these high-quality assets when times get tough enough.

“During a period of stress, banks would be expected to use their pool of liquid assets, thereby temporarily falling below the minimum requirement,” stated the Group of Governors and Heads of Supervision in Reuters. GHOS directs the Basel Committee on Banking Supervision, driver of Basel III reforms.

The committee’s concession is due in part to financial industry arguments that surcharges would impair institutions’ ability to lend. But a report late last year found that the benefits of buffers outweigh their damages.

The eventful weekend also saw all 27 nations comprising the Basel committee agree to peer review of their Basel III implementation. The U.S. may have been shirking its duties under the accord, “leading other members to question why they should abide by them,” noted The Telegraph.

If Basel III implementation wasn’t enough, U.S. authorities are also having difficulty meeting Dodd-Frank deadlines, according to a progress report by law firm Davis Polk & Wardwell. As we rang in 2012, 149 of the 200 rules thus far have seen due dates come and go without. And chalk up another 200 rules that are still awaiting their deadlines.