SARB to Ease Basel Rules (Temporarily)
In order to give out credit to consumers banks and to take deposits and savings from consumers, banks are required to have a small amount of the money they are giving out. This is known as the minimum capital requirement.
In the face of the Covid-19 Pandemic, banks have been pressing regulators and governments including the Basel Committee on Banking Supervision to reduce how much money they need in their own bank accounts. These Basel rules were updated in 2009 during the great recession, which started in 2008 (the subprime housing crisis which sparked off in the USA and spread world wide).
This is because for the next few months consumers are probably not going to be paying back their loans and so their figures could drop below the required amounts. This would then mean they would have to stop trading (which basically can’t happen).
‘for the next few months consumers are probably not going to be paying back their loans’
So, worldwide banking organisations and regulators like the local SA Reserve Bank are now planning to reduce how much money the banks need on hand by around 20% of the Basel requirements. The idea is to temporarily allow the banks to hold less reserves and then progressively over time ask them to bring that reserve back up to the full ratio.
‘banks are required to have a small amount of the money they are giving out’
This could potentially free up around R300 billion which the banks could use to weather the storm ahead.