China mulls adjusting rules on bank liquidity

BEIJING -- China's banking regulator is mulling easing some rules on banks' liquidity ratios to shore up lenders' ability to counter liquidity risks, it said in a statement on Friday.

Draft rules released by the China Banking Regulatory Commission (CBRC) allow banks to maintain a liquidity coverage ratio (LCR) lower than 100 percent before 2018 under pressure conditions, which reflect new changes in the Basel III guidelines.

Banks should meet an LCR level of 60 percent by the end of 2014 and then gradually rise to 100 percent with a 10-percent annual increase from 2014 to 2018, the draft rules said.

The LCR is a regulatory barometer to help review banks' short-term resilience to high-pressure conditions, and is part of the package of reforms introduced by Basel III to help set a more stable and healthy banking system.

A credit crunch in June alerted banks and their regulator to loopholes in liquidity risk management. Interbank lending was nearly frozen when the seven-day Repo Rate and Shanghai Interbank Offered Rate shot up to double digits.

The CBRC said it is seeking public opinion on the draft rules and the new regulations will take effect on Jan 1, 2014.

It drafted liquidity rules in October 2011 and made adjustments to them in January this year to meet Basel's new LCR requirements.