Banks may be pleased with global regulators recent move to ease aspects of the Basel III capital adequacy regime, but Moody’s Investors Service suggests that this is negative for banks’ credit profiles.

Earlier this month, the Basel Committee on Banking Supervision published a series of documents setting out its latest plans for the leverage and liquidity aspects of the Basel III framework. Among other things, the committee relaxed the liquidity coverage ratio (LCR) minimum requirement, disclosure rules, and implementation schedule. It’s also less strict with proposed funding ratio requirements.

“Although the committee’s guidance and proposals indicate progress toward the full completion of the Basel III framework, they ease many proposals, which is credit negative for banks,” says the rating agency in a new report.

Moody’s notes that the Basel Committee is clearly concerned about a trade-off between boosting financial stability and encouraging bank intermediation. And, it has apparently been swayed by some of the industry’s arguments.

“The banking industry has repeatedly argued that imposing too stringent a regulatory framework would deprive ailing economies of much-needed lending, thereby delaying economic recovery,” it says. “In recognition of this risk, the [Basel Committee] watered down earlier proposals to ease the constraints imposed on banks.”