Regulators delay rules to stop shadow bank runs

Basel regulators said in a December 2010 report they will not soon adopt measures to deal with bank runs, like the repo run in 2007 and 2008 that triggered the financial crisis. Instead, they will phase in the measures and monitor the effects, to avoid “unintended consequences,” a report said.

The measures are called the liquidity coverage ratio and the net stable funding ratio. Basel regulators said they expect to begin the observation period in 2011, and they hope to dopt the liquidity coverage ratio in 2015 and the net stable funding ratio in 2018.

The goal of the liquidity coverage ratio is to make sure financial institutions have enough ready money to withstand sudden large withdrawals.

The goal of the net stable funding ratio is to create incentives for banks to use longer-term funding in place of overnight borrowings, and to match maturities, for example to make long-term loans with long-term rather than short-term borrowings.


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