The increased use of netting was a key demand of lenders. The process allows banks to offset the value of different assets and liabilities taken on with a single trading partner, reducing the size of their assets when they calculate whether they meet the rule.
The Basel group said that “limited netting” would be permitted on securities financial transactions such as repurchase agreements, or repos, provided that “specific conditions” are met.
The move “recognizes the benefit of netting in reducing systemic risk and is welcome,” Simon Hills, executive director at the British Bankers’ Association, said in an e-mail.
Another positive change is a revision of the rules used to measure some off-balance sheet activities, as this would benefit “trade finance transactions which banks provide to oil the wheels of international trade and economic growth,” Hills said.
The regulators didn’t make all the changes sought by banks, rejecting calls for some low-risk assets to be exempted from the rule.
The Basel group also amended a rule, published last year, designed to force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze. The amendments to the measure, known as a liquidity-coverage ratio, or LCR, widen the opportunities to use so-called committed liquidity facilities from central banks to meet the rule.
The committed liquidity facilities allow lenders to tap central bank loans in an emergency in exchange for an upfront fee.
It will be left to national regulators to decide whether to “make use” of the flexibility, and central banks remain “under no obligation to offer such facilities,” the group said. The LCR is scheduled to be phased in as a binding rule starting next year.
The Basel group brings together regulators from 27 nations including the U.S., U.K. and China to coordinate rule-making.
The regulators also published an updated draft of another liquidity rule, known as a net-stable funding ratio, or NSFR, aimed at requiring banks to finance longer-term lending with sources that are unlikely to dry up in a crisis.
The changes relax some elements of the rule while toughening others. One reason behind the changes is to “focus greater attention on short term, potential volatile funding sources,” the group said.
The Basel committee said it will seek views on the NSFR plans until April 11 and will finish work on them by the end of this year. The NSFR is set to become a binding rule in 2018.