International financial regulators, the Basel Committee on Banking Supervision, have amended its Liquidity Coverage Ratio (LCR) rules designed to ensure that banks hold sufficient liquid assets to pay their debts in the event of financial meltdown.

The changes have been approved by the Group of Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision.

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The package of amendments has four parts:

  1. Revisions to the definition of high quality liquid assets (HQLA) and net cash outflows;
  2. A timetable for phase-in of the standard;
  3. A reaffirmation of the usability of the stock of liquid assets in periods of stress, including during the transition period and,
  4. An agreement for the Basel Committee to conduct further work on the interaction between the LCR and the provision of central bank facilities.

The LCR will be introduced on 1 January 2015, but the minimum requirement will begin at 60%, rising in equal annual steps of 10 percentage points to reach 100% on 1 January 2019.

According to the Bank for International Settlements (BIS) this graduated approach is designed to ensure that the LCR can be introduced without disruption to the orderly strengthening of banking systems or the ongoing financing of economic activity.

Mervyn King, chairman of the GHOS and governor of the Bank of England, said, "The Liquidity Coverage Ratio is a key component of the Basel III framework. The agreement reached today is a very significant achievement. For the first time in regulatory history, we have a truly global minimum standard for bank liquidity.

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"Importantly, introducing a phased timetable for the introduction of the LCR, and reaffirming that a bank’s stock of liquid assets are usable in times of stress, will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery."