Bloomberg News

Basel Committee Said to Consider Delay of Bank Liquidity Rule

November 30, 2012

Basel Committee Said to Consider Delay of Bank Liquidity Rule

Stefan Ingves , the Basel committee’s chairman and governor of Sweden’s Riksbank, has said that there is no hard evidence to back up claims that the liquidity coverage ratio has side effects that damage interbank lending. Photographer: Simon Dawson/Bloomberg

Global financial regulators may delay a planned bank liquidity rule that was slated to take effect in 2015, according to two people familiar with the matter.

The Basel Committee on Banking Supervision is weighing whether to delay the rule past 2015 or start a phased rollout in that year, said one of the people, who both requested anonymity because the talks are private. The panel, which meets Dec. 13- 14, also could opt to proceed with the previous schedule as it races to meet a January deadline for reviewing the so-called liquidity coverage ratio or LCR.

Delays or measures to ease the rule’s impact may be justified because of concerns that the standard may stifle interbank lending, make it harder for central banks to implement their policies and hamper Europe’s recovery from its fiscal crisis, the other person said.

U.S. regulators may not push back against a longer transition period and have emphasized that it is important to get the LCR right. Federal Reserve Governor Daniel Tarullo testified June 6 before the Senate Banking Committee that additional work was needed to make it more comprehensive and to assure that it didn’t have the “unintended effect of exacerbating a period of stress by forcing liquidity hoarding.”

A sample of 209 banks assessed by the Basel committee had a collective shortfall of 1.8 trillion euros ($2.3 trillion) as of end-2011 in the assets needed to meet the LCR, according to figures published by the Basel group based on a draft version of the standard. Much of the shortfall was registered at the 102 large international banks that were surveyed, the Basel group said.

European Shortfall

European banks had a 1.17 trillion-euro shortfall in their LCR requirements at the end of 2011, according to data from the European Banking Authority. Banks have complained that full compliance with the proposed new rule would force them to cut loans to businesses and households.

The LCR, which would force banks to hold enough easy-to- sell assets to survive a 30-day credit squeeze, was drawn up by the Basel committee as part of a package of measures in response to the 2008 financial crisis. It is scheduled to become binding as of Jan. 1, 2015 if the panel does not change its view.

ECB President Mario Draghi has warned the measure risks choking off bank lending, while Bank of England Governor Mervyn King has said that the rule should be applied cautiously. Some other regulators, including in the U.S., Sweden and Germany, say that heavily diluting the LCR risks rendering the standard meaningless.

Stefan Ingves, the Basel committee’s chairman and governor of Sweden’s Riksbank, has said that there is no hard evidence to back up claims that the LCR has side effects that damage interbank lending. The example of Sweden, where large banking groups already publicly disclose how well they measure up to the LCR, is “reassuring,” Ingves said Nov. 15.

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net; Annette Weisbach in Frankfurt at aweisbach1@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net


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