New rules for banks could hurt lending: BIS

The world’s top central bank body BIS said Wednesday that planned changes to liquidity and funding rules for banks would hurt lending in the short term and could hamper a credit-driven recovery.

“Expected changes in funding practices should lead … to increased cost and slower expansion of credit by international banks,” said the Bank for International Settlements in a report prepared by the Committee on the Global Financial System.

“To the extent that pre-crisis credit expansion may have been excessive, and credit risk underpriced, this would not necessarily be an undesirable outcome, although it would not favour rapid credit growth facilitating global recovery,” said the report by the group chaired by Mario Mesquita, former deputy governor of Brazil’s central bank.

In the aftermath of the financial crisis, regulators are tightening rules to ensure that banks are adequately funded in order to avoid another liquidity shortfall.

These moves are likely to have a greater impact on lending in smaller emerging economies in central and eastern Europe than those in Asia and Latin America, particularly those that have huge savings surpluses, said the BIS.

Overall, “the transition will probably not favour a credit-sustained economic recovery.”

“Yet simple reversion to the status quo ante does not seem a likely or reasonable option, nor would it be consistent with the necessary enhancements to the resilience of the financial system,” said the BIS.