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Basel Group Said to Set June Deadline for Liquidity-Rule Deal

Global banking regulators set themselves a June deadline to reach an agreement on changes to draft liquidity rules amid concerns that delays may undermine investor confidence, according to two people familiar with the discussions.

The Basel Committee on Banking Supervision discussed the standard at a meeting in the Swiss city that ended today, according to the people who couldn’t be identified because the talks are private.

The aim of the liquid-assets measure is to ensure that lenders hold enough easy-to-sell assets to survive a 30-day credit squeeze. The requirement, part of the so-called Basel III pact designed to prevent a repeat of the 2008 financial crisis, is scheduled to take effect in 2015.

Banks have argued that the liquidity coverage ratio, or LCR, may curtail loans by forcing them to hoard cash and buy government bonds. Bank supervisors say the standard is needed to prevent a repeat of the collapses of Lehman Brothers Holdings Inc. (LEHMQ) and Dexia SA (DEXB), which were blamed in part on the lenders running out of short-term funding. Global regulators said last year that they would amend the rule to address any unintended consequences.

The Basel group this week considered expanding the range of assets that lenders could count toward meeting their LCR requirements, the people said. Regulators were unable to agree on what changes should be made and requested more information on the impact of different options.

Stressed Scenario

The group also considered changes to the hypothetical stressed scenario that lenders must use when calculating if they will meet the liquidity standard, one of the people said.

Regulators at the Basel meeting also agreed to do further work on plans to overhaul rules for securities in banks’ trading books, one of the people said.

The committee has been studying whether to scrap having different sets of capital requirements for assets that banks keep in their trading books as opposed to those, in their banking books, that they intend to hold to maturity. The group was scheduled to present its conclusions by the end of 2011.

The Basel committee brings together banking regulators from 27 nations including the U.K., U.S. and China to set prudential rules for international lenders.

The group agreed in 2010 to more than triple the core capital that financial firms must hold. Last year, it also targeted 29 lenders including Deutsche Bank AG (DBK), BNP Paribas (BNP) SA and Goldman Sachs Group Inc. (GS) for capital surcharges of as high as 2.5 percent of their assets, weighted for risk, in a bid to rein in lenders deemed too big to fail.

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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