By Kang Seung-woo
The Basel Committee on Banking Supervision (BCBS) took a step closer Tuesday to finalizing a reform program for the world’s banks after financial regulators and central bank governors agreed on a package announced last week.
Following the committee’s day-long meeting held in Seoul, Nout Wellink, chairman of the BCBS, said that the committee agreed on key details of the liquidity coverage ratio (LCR) and new regulations for this will take effect from 2015 as scheduled.
The new standard, which aims to raise the buffer of high-quality liquid assets so that a bank can withstand a period of stress, will be subject to an observation period and will include a review clause to address any unintended consequences. The new rules, known as Basel III, are scheduled to be phased in from 2013 with banks asked to hold higher reserves by January 1, 2015.
"The finalization of the liquidity framework today should be seen as a landmark in the history of banking regulation," said Wellink, who is also president of the Netherlands' central bank. "What we did is completely new."
The committee also agreed to finalize rules on "systemically important financial institutions" (SIFI) by the middle of next year. "The capital requirement, combined with a global liquidity framework, will substantially reduce the possibility of a banking crisis in the future," he said.
Financial Supervisory Service Governor Kim Jong-chang expects that there will be little impact on local banks if regulations on SIFI are unveiled.
“According to Bank magazine, Woori Financial Group ranked 99th in terms of assets at the end of 2009, and even if a merger between major banks takes place, it will be tough to rank inside the top 50,” he said.
However, he added that local players should keep themselves in check.
“The BCBS’s regulatory reform is not raising capital, but checking broad areas on systemic risks, such as leverage and derivatives. So they need to focus on investing in liquidity assets.”