Bloomberg News

EU Lawmakers Pledge to Defend Basel Liquidity Rule From Backlash

September 15, 2012

European Union lawmakers are resisting a push by the European Central Bank and the bloc’s executive arm to water down a planned bank liquidity rule amid concerns that the measure may harm economic recovery.

Philippe Lamberts, a member of the European Parliament who is leading work on the draft law for the assembly’s Green group, said that officials from the European Commission in Brussels have argued in favor of “reconsidering the EU’s approach to liquidity” and for delaying any commitment to apply the measure until an international review is completed.

“The parliament’s negotiation team responded firmly that we stick to our approach that we must commit now for binding liquidity ratios,” Lamberts said by telephone from the Belgian capital.

The measure, known as a liquidity coverage ratio, or LCR, would oblige banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze. The requirement was included by global regulators in an overhaul of bank rules that was agreed on by the Group of 20 nations following the collapse of Lehman Brothers Holdings Inc.

The LCR is scheduled to take effect starting in 2015 and must be enshrined in national laws before it can come into force. The EU published its draft rule last year.

“This is too important to be left hanging in the air,” Lamberts said. “We shouldn’t roll back on our promise” to fully apply the international standards, he said.

Interbank Lending

The LCR was discussed yesterday at a meeting of EU finance ministers and central bank governors in Nicosia, Cyprus, said Stefaan De Rynck, a spokesman for Michel Barnier, the EU’s financial services chief.

Barnier said at the meeting that the rule needs to be “well calibrated” so that it supports lending to the real economy and doesn’t disrupt interbank lending, De Rynck said.

Europe’s banks had a collective shortfall of approximately 1.2 trillion euros ($1.6 trillion) in the liquid assets needed to meet the LCR at the end of June 2011, according to figures published by the European Banking Authority.

Banks have cautioned that the measure may force them to scale back loans to businesses if left unchanged. ECB President Mario Draghi has also criticized the standard, saying it discourages banks from lending to each other.

The EU’s rule-making should be flexible so that the LCR can be adapted to any changes to the measure agreed on at international level, Lamberts said.

The Basel Committee on Banking Supervision, which brings together regulators from 27 nations including the U.S., U.K. and China, is aiming to complete a review of the LCR by the end of this year.

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

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


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