INTERNATIONAL BANKING regulators are preparing to strip down their recommendations on how to ensure the industry’s financial strength, following months of wrangling.

In an attempt to ensure the timetable for announcing the reforms can go ahead as planned in November, a consensus within the Basel Committee is now suggesting that the radical blueprint of global proposals published six months ago should be thinned down, according to regulators and bankers.

That would allow the committee, which oversees global banking regulation, to publish a basic foundation for the new Basel III rules on time, without resolving disagreements on many of its most contentious proposals on capital, liquidity and leverage.

A draft of the committee’s latest thinking is set to be presented at the G20 summit in Toronto at the weekend.

The changed stance, which follows intense lobbying by the banks, will be criticised by hardline reformers. But banks say the modified blueprint would prevent an excessive rise in funding costs and in borrowing charges for customers.

Analysts had calculated that if implemented in conjunction with new taxes around the world, such as the liability tax announced by the UK government this week, the Basel III reforms could have cut a typical bank’s return on equity from 20 per cent to 5 per cent.

The most significant change concerns the committee’s recommendations on the volume of liquid funds that banks should hold.

Although the proposed short-term emergency liquidity measures will go ahead, the committee looks set to shelve the concept that banks should be forced to maintain a longer-term “net stable funding ratio” aligning the maturity of assets and liabilities. It could be replaced by a different system of oversight, according to those close to the drafting process.

Other issues, such as the capital treatment of partially owned subsidiaries and pension deficits, may be the subject of only minimal international rule-making, at least in the short term.