Regulators to Banks: You Need to Hold Less Money

Banks around the world breathed a sigh of relief today when regulators agreed to ease rules on liquid holdings, Bloomberg reports. Facing a barrage of criticism, the Basel Committee on Banking Supervision agreed to let banks hold less cash—at least for now—and a greater variety of liquid assets than a rule had previously allowed. Analysts say the update will ease interbank lending and make banks less vulnerable to runs.

"This was a compromise between competing views from around the world," said Bank of England Governor Mervyn King. "For the first time in regulatory history we have a truly global minimum standard for bank liquidity." The deal allows banks to hold only 60% of their required liquidity by 2015 and the rest by 2019; tests in 2011 found that 209 banks were $2.3 trillion short of assets they were supposed to hold. Banks warned that Basel's original 2010 rule would force them to buy more sovereign debt and tether their fate to governments' solvency.