On January 6, 2013, the Basel Committee on Banking Supervision
announced that it was relaxing the liquidity rules that will be
applied to banks beginning in 2015. The Group of Central Bank
Governors and Heads of Supervision ("GHOS"), the
oversight body of the Basel Committee, then unanimously adopted the
last changes made by the Basel Committee to the liquidity coverage
ratio ("LCR"), which were presented in
the version published in December 2010. This ratio is intended to
enable banking institutions to withstand a severe crisis for a
period of 30 days. The new rule will require banks to hold enough
securities that can be easily be converted into cash, such as
government or corporate bonds, to cover net cash outflows in case
of serious funding difficulties for one month, in order to avoid a
Changes to the LCR are made at four levels:
revisions to the definition of high quality liquid assets
("HQLA") and net cash outflows by expanding the range of
qualifying assets for these liquidity reserves to, among other
things, equities and residential mortgage-backed securities
a timetable for the gradual phase-in of the LCR standard;
reaffirmation of the usability of the stock of liquid assets in
periods of stress, including during the transitional period;
approval for the Basel Committee to continue its work on the
interaction between the LCR and the provision of facilities by
The full text of the LCR rules, incorporating the changes
discussed here, was published on Monday, January 7, and is
available on the website of the Bank for
The GHOS announced that the LCR would be subject to transitional
provisions, which will follow those defined for the implementation
of the Basel III capitalisation requirements. More specifically,
the LCR will come into force, as planned, on January 1, 2015, but
the minimum requirement will initially be fixed at 60%, thereafter
increasing annually by 10 points to 100% on January 1, 2019. The
banks are therefore being given four more years, as many of them
had indicated that it was impossible to meet the original deadline
of January 2015 for building these reserves while continuing their
lending operations. The aim of this gradual approach is to ensure
that the implementation of the LCR does not disturb the process for
strengthening the banking systems or ongoing financing of economic
activity, particularly in certain euro zone countries.
The Basel Committee can now turn its attention to improving the
other component of the new global liquidity standard, the net
stable funding ratio, still in the observation phase, which is
scheduled for implementation in 2018.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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