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By Huw Jones
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LONDON (Reuters) – Banks will be given sufficient time to replenish capital buffers dented by heavier lending and rising loan losses during the COVID-19 pandemic, global banking regulators said on Wednesday, adding they could offer more relief to the sector if needed.
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The Basel Committee of banking supervisors from Asia, the United States and Europe said a “measured” drawdown of capital and liquidity buffers in the current time of stress was appropriate.
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“Supervisors will provide banks sufficient time to restore buffers, taking account of economic and market conditions and individual bank circumstances,” the committee said in conclusions from two recent meetings made public on Wednesday.
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Banks worry that reporting lower capital ratios by tapping buffers would be a red flag to investors, and regulators want to offer markets reassurance in advance.
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Regulators have already taken several steps to help banks keep lending to customers during the pandemic, such as delaying upcoming capital rules and pushing back when they must set aside capital to cover loans that turned sour in the crisis.
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“The Committee will continue to monitor the vulnerabilities and risks to the global banking system from COVID-19 and will pursue additional measures if needed,” it said.
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The committee also kept up the pressure on banks to end the use of the tarnished Libor interest rate benchmark. Lenders were fined for trying to manipulate the benchmark, which is being replaced by central bank rates.
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Ending Libor, used for pricing contracts worth about $400 trillion globally, by the end of 2021 is one of the biggest tasks facing financial markets in decades.
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“The Committee places high priority on this issue and expects all banks to be adequately prepared to meet the transition timeline,” it said.
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The regulators said they also intends to hold a public consultation on possible capital requirements for banks that hold crypto assets.
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(Reporting by Huw Jones; Editing by Pravin Char)
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