Bloomberg News

ECB’s Draghi Criticizes Global Regulators’ Bank Liquidity Rule

September 04, 2012

European Central Bank President Mario Draghi criticized a liquidity rule proposed by global regulators for lenders, telling lawmakers that the standard discourages banks from lending to each other.

The measure, known as a liquidity coverage ratio, “strongly penalizes interbank lending,” Draghi said in a closed-door session of the European Parliament in Brussels. Bloomberg News obtained a recording of his comments, some of which were published by Italian news agency AGI yesterday.

Global regulators are split over how far to revise the draft LCR rule, which would require banks to hold enough easy- to-sell assets to survive a 30-day credit squeeze. The ECB is pushing the Basel Committee on Banking Supervision to expand the types of assets banks can use to meet the requirements, according to three people familiar with the talks.

The central bank presented its plan for overhauling the LCR during discussions in the Basel committee’s working groups, including a meeting in New York last month, according to one of the people, who couldn’t be named because the talks are private. Its arguments received only limited support, the person said.

The Frankfurt-based ECB referred to the closed-door format of the hearing and didn’t provide any further comment on Draghi’s remarks. The ECB has warned regulators that the LCR may hamper efforts to combat the euro-area debt crisis by curtailing lending and making it harder for central banks to implement monetary policies.

Collective Shortfall

The 212 largest global banks would have had a collective shortfall of 1.76 trillion euros ($2.2 trillion) as of June 2011 in the assets needed to meet the LCR, according to figures published by the Basel Committee.

The standard was drawn up by the Basel committee as part of a package of measures to prevent a repeat of the turmoil that followed the 2008 collapse of Lehman Brothers Holdings Inc.

The Basel Committee will meet Sept. 11 to 13 to weigh changes to the measure ahead of a January 2013 deadline.

“Good steps are being undertaken at the Basel Committee level” to revise the rule, Draghi said.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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