Global regulators will next month seek to broker an accord on bank liquidity rules that lenders and some central banks have warned might stymie economic growth and hamper monetary policy.
Stefan Ingves, chairman of the Basel Committee on Banking Supervision, said the group is aiming to meet its end-of-the- year deadline for reviewing its planned liquidity coverage ratio, or LCR, which would force banks to hold enough easy-to- sell assets to survive a 30-day credit squeeze.
The Basel group must reach agreement on a “few outstanding issues” when it meets in the Swiss city next month, Ingves said in a speech in Panama today. “We would be failing in our responsibilities if we did not push on to finalize these proposals in the near future.”
The LCR standard, which is scheduled to become binding on banks in 2015, has been criticized by European Central Bank President Mario Draghi and Michel Barnier, the EU’s financial services chief. Other regulators see it as an essential response to the failure of banks such as Northern Rock Plc, which had to be nationalized after losing access to short-term funding.
“This is very difficult work given the wide range of issues we must consider,” said Ingves, who also heads Sweden’s central bank. The rule has “far-reaching implications.”
The measure “strongly penalizes interbank lending,” Draghi said in a closed-door session of the European Parliament in Brussels in September. “Good steps are being undertaken at the Basel Committee level” to revise the rule.
Ingves today countered criticism of the LCR, saying that Sweden’s example showed that such measures can work.
The country has been forcing its lenders to disclose their performance against a preliminary version of the liquidity rule that was published in 2010.
“The Swedish experience with liquidity regulation has been very positive,” he said. “The results so far are reassuring and there are no signs that monetary policy operations or the functioning of the interbank market have been affected by the implementation of the LCR.”
The Basel group’s revisions to the LCR are likely to include an easing of assumptions about the conditions banks may face in another credit crisis, people familiar with the talks have said.
Jonathan Faull, the EU’s chief official working on financial regulation, said today that the bloc would wait for the Basel committee to finalize its rules before writing the LCR into its laws.
Ingves said the committee’s future work also includes an overhaul of capital rules for the operational risks banks face, such as fraud and rogue trading.
It will also review capital rules for banks that use assessments given by credit-ratings companies to calculate the reserves they must hold against losses on assets, Ingves said.
Other work plans include a rethink of capital rules for securitized debt, and an update of measures to limit how much business a bank does with a single counterparty, Ingves said.
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