In a draft of the regulations published two years ago, the Basel Committee on Banking Supervision said banks had until 2015 to meet requirements on the minimum amounts of cash and other liquid assets they have to hold.
But the Group of Governors and Heads of Supervision (GHOS), which is the group of banking regulators that oversees the committee, has extended that deadline to 2019 after intensive lobbying by the industry.
In addition, the GHOS has expanded its definition of high-quality liquid assets to include lower rated corporate bonds, certain residential mortgage-backed securities and equities. This will make it easier for banks to meet the liquidity requirements.
Basel III’s liquidity coverage ratio (LCR) demands that banks hold enough cash and easy-to-sell assets to cover them over a 30-day crisis. It is intended to make them less vulnerable to ‘runs’ such as the one that struck Northern Rock in 2007.
Bank of England governor Mervyn King, chairman of the GHOS, said: "The liquidity coverage ratio is a key component of the Basel III framework.
“Importantly, introducing a phased timetable for the introduction of the LCR and reaffirming that a bank’s stock of liquid assets are usable in times of stress will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery."
Bank shares have risen on the news, with Barclays and Lloyds gaining in London and Deutsche Bank and Commerzbank advancing in Frankfurt. The MSCI World Financials Index was also up.
Capital Economics chief global economist Julian Jessop said: “The expansion in the range of assets that can be used to meet the new liquidity requirements under Basel III, combined with their slower implementation, is a small positive for the banking sector, but should not have any major economic or market impact.
“The banking industry has, understandably, welcomed the softening of these rules. However, the wider implications should be limited. Most of the large and therefore systemically important banks already meet the LCR as originally proposed.”