By Taro Fuse and Sumio Ito
TOKYO (Reuters) - Global banking regulators will avoid forcing banks to set aside money to cover the risk of higher interest rates, two people with direct knowledge of their deliberations said, easing concerns among some banks about the potentially high costs of holding government bonds and long-term loans.
The Basel Committee, a body of banking supervisors from nearly 30 countries, this month reached a basic agreement to let local regulators decide on set-asides to protect against rate shocks, avoiding a stronger proposal for minimum capital requirements, the sources said.
The move is the latest sign that regulators are becoming more accommodative as policymakers consider the job of repairing banks after the global financial crisis as largely done. Finance ministers from the Group of 20 major economies agreed in February that remaining changes to Basel rules should not further significantly increase capital requirements on banks.
Banks have said these remaining reforms constitute a "Basel IV", or step change in capital requirements compared with the Basel III accord agreed during the crisis, a criticism rejected by central bankers including Bank of England chief Mark Carney, who chairs the G20’s Financial Stability Board.
The Basel Committee will publish the final plan on rate risks as early as next month, the sources said.
Talks in the Swiss financial centre became bogged down a year ago, after which the committee in June laid out both the tougher "Pillar 1" and looser "Pillar 2" options for managing rate risks, and invited public comments until September.
The Basel Committee declined to comment.
Countries such as Germany, Britain, Switzerland and the Netherlands were among Basel members arguing for mandatory capital provisions in the wake of the euro-zone crisis, which saw interest rates soar in peripheral economies such as Greece, the sources said.
The United States and Japan, however, favoured a more flexible approach that takes into account differences in the kinds of risks among various countries and banks, they said.
If the tougher plan were adopted, "it could have an impact on long-term lending - such as overseas project finance, which Japanese banks have focussed on - and on their government bond holdings," one of the sources said.
While settling on the softer option, regulators agreed to standardise to some extent the methods of calculating banks' rate risks, which was seen as making the scale of risks more comparable and improving transparency, the sources said.
The rate-risk plan is to be the first detailed global bank capital rule of its kind, replacing broad principles and guidelines. It will come on top of capital targets already set by regulators in a bid to prevent a repeat of the financial crisis.
Basel was particularly concerned about the risk of rate shocks given the prolonged period of very low interest rates in much of the world.
(Reporting by Taro Fuse and Sumio Ito, with additional reporting by Huw Jones; Writing by Taiga Uranaka; Editing by William Mallard and Ian Geoghegan)