Global central bank chiefs gave lenders four more years to meet international liquidity requirements and watered down the measures in a bid to stave off another credit crunch.
Banks won the delay to fully meet the so-called liquidity coverage ratio, or LCR, following a deal struck by regulatory chiefs meeting yesterday in Basel, Switzerland. They'll be able to pick from a longer list of approved assets including equities and securitized mortgage debt as they seek to build up buffers of liquidity for use in a financial crisis.
"This was a compromise between competing views from around the world," Bank of England Governor Mervyn King said at a briefing following yesterday's meeting. King chairs the Group of Governors and Heads of Supervision, or GHOS, which decides on global bank rules. "For the first time in regulatory history we have a truly global minimum standard for bank liquidity."
Banks and top officials such as European Central Bank President Mario Draghi pushed for changes to the LCR, arguing that it would choke interbank lending and make it harder for authorities to implement monetary policies. Lenders have warned that the measure might force them to cut back loans to businesses and households.
"The new liquidity standard will in no way hinder the ability of the global banking system to finance a global recovery," King said. "It's a realistic approach. It certainly did not emanate from an attempt to weaken the standard."
The Bloomberg Europe Banks and Financial Services Index rose as much as 2.1 percent with Italy's Banca Monte dei Paschi di Siena SpA leading gains at 19 percent. Deutsche Bank AG (DBK) added as much as 5 percent and both BNP Paribas SA (BNP) and Barclays Plc (BARC) were up 4 percent.
"The loosening of liquidity rules has been long-signalled, and thus we wouldn't expect a huge rally, but we have been badly wrong-footed in the past," Sandy Chen, bank analyst at Cenkos Securities in London, wrote in a note to clients.
The decision to relax liquidity rules for banks may boost pre-tax profit at Barclays by around 4 percent, according to Andrew Lim, an analyst at Banco Espirito Santo SA.
U.K. banks such as Barclays, which have built up large reserves of high-quality liquid assets, will be among the biggest beneficiaries of global regulators' decision to implement a watered-down version of the LCR, Lim said in a note to clients.
Regulators at the Basel Committee on Banking Supervision struggled throughout 2012 to revise the LCR. After failing to reach a final deal last month, it was left to central bank and regulatory chiefs on the GHOS to make a final decision.
The LCR would force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze. It's a key component of a package of capital and liquidity measures, known as Basel III, drawn up to avoid a repeat of the 2008 financial crisis.
Basel III has been subject to mounting criticism for its complexity, amid delays to its implementation in the European Union and U.S.
The liquidity rule sets out a stress test that banks should apply to their books, assessing whether they would be able to generate enough cash from asset sales to meet their regulatory obligations.
A draft version of the measure was published by regulators in 2010, on the basis that it would take effect on Jan. 1, 2015.
Under yesterday's deal, banks would only have to meet 60 percent of the LCR obligations by 2015, and the full rule would be phased in annually through 2019, according to an e-mailed statement from the GHOS.