BCBS accepts S. Korea's monetary stabilization deposit proposal

The BCBS accepted South Korea's proposal to ease monetary stabilization account deposit rules that can reduce the burden on lenders.

This was announced, South Korea's central bank, the Bank of Korea, who said that international banking supervisory authority agreed to adjust the so-called Basel 3 rules aimed at better insulating the global banking sector from sudden liquidity shortfalls, reports Yonhap News.

Under the modified plan, lenders can withdraw the total sum of their monetary stabilization account reserve they have deposited with the central bank under emergency conditions.

This represents a change from the 50 percent maximum withdrawal limit set under the current Basel 3 standard.

The shift is important because under the previous guidelines, only half of the money deposited in the monetary stabilization account were counted as short term liquidity reserve that a lender could use. This translated into greater need for banks to have more cash set aside to meet reserve requirements set by Basel Committee on Banking Supervision.

Such measures effectively curtail a bank's ability to lend or invest its deposits to make profit.

The BOK said the rules change could help push up actual short-term liquidity coverage ratio of South Korean lenders by about 1 percent. As of late 2010, the average LCR ratio of South Korean bank stood at 75 percent of the Basel 3 standard.

The central bank, however, said because the new standard pertaining to short-term liquidity does not go into effect until January 2015, there is time for banks to reduce their vulnerability to a sudden liquidity crunch that could cripple the financial sector.