Five New Rules for Banks in 2015

Six new rules for banks in 2015

Illustration by 731; Animation by Steph Davidson

Some of the most important banking rules introduced after the 2008 global financial crisis will take effect next year. Rulemaking was slow and contentious as banks resisted regulators at every turn, arguing that the restrictions would hurt profits. Will the rules make banks safer? We won’t know until the next crisis.

Basel liquidity rule

Covers: Banks worldwide
 
What it does: Requires banks to hold enough cash and easy-to-sell assets to meet all debt coming due within 30 days.
 
Impact: Ensures banks won’t run out of money if they can’t borrow during a credit crisis. It will force them to hold more cash or government securities, which have lower returns than riskier assets. Compliance will be phased in over five years.

Leverage ratio

Covers: Banks worldwide
 
What it does: Requires banks to maintain a certain level of capital—assets minus liabilities—as a percentage of all assets on their books, including those considered risk-free under previous rules, such as government bonds.
 
Impact: Banks say removing the exemption for low-risk assets will encourage them to load up on riskier ones such as corporate bonds. Regulators say restrictions like the liquidity rule will prevent banks from doing that.

Volcker Rule

Covers: U.S. banks and U.S. operations of global banks
 
What it does: Restricts banks from making investment bets with their own money, including through ownership of hedge funds or private equity firms.
 
Impact: Will reduce banks’ vulnerability to market slumps, but it also eliminates a potential source of profits. Banks plan to ask regulators to delay the ban on fund ownership, arguing that they won’t get the best prices for their assets if they’re forced to sell quickly.

Banker pay limits

Covers: European Union
 
What it does: Caps bankers’ bonuses at twice their salary.
 
Impact: To get around the rule, banks have begun increasing the fixed portion of employees’ pay. That could lead to problems, because fixed pay is harder to reduce when times are bad.

Common resolution

Covers: Euro area
 
What it does: Establishes a €55 billion ($69 billion) fund to cope with failing banks.
 
Impact: Money for the fund will be collected from banks over eight years. Critics say the amount is too small to bail out even a midsize European lender.

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