Basel Group Faces ‘Now or Never’ Chance on Bank-Liquidity Rule
Global financial regulators begin three days of talks today that may pave the way for a deal on liquidity rules that lenders and the European Central Bank warn could stifle the economic recovery.
The Basel Committee on Banking Supervision will attempt to overcome divisions within its ranks as it races to meet a self- imposed January deadline for reviewing the liquidity coverage ratio, or LCR, three people familiar with the discussions have said. ECB President Mario Draghi has warned the measure risks choking off bank lending, while some other regulators, including in the U.S., say that diluting the LCR risks rendering the standard meaningless, according to the people.
“It’s now or never for the LCR,” Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics Inc., said in an e-mail. “If Basel can’t cobble together an agreement on it that is more than papered-over differences, the U.S. and U.K. will implement their own rules, the EU will stand down and the global liquidity framework may well dissolve.”
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 group based on a draft version of the standard. Lenders have warned that full compliance with the LCR would force them to cut loans to businesses and households.
Credit Squeeze
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.
Jamie Dimon, chief executive officer of JPMorgan Chase & Co. (JPM), has said that the U.S. should consider withdrawing from the Basel committee and that the rules it sets are “anti- American.”
The LCR is one of the main items on the agenda of the Basel meeting, which begins today in Istanbul, according to the people. The Basel group declined to comment on the talks.
The draft version of the LCR “strongly penalizes interbank lending,” Draghi said in a closed-door session of the European Parliament in Brussels last week. The ECB is also concerned that the rule may make it harder for the central bank to implement its monetary policies, and that it may restrict lending to the real economy, the people said last month.
Eligible Assets
The ECB’s requests include that the list of eligible assets that banks can use to meet the LCR should be expanded to include some asset-backed securities and loans to businesses, as part of a broader push to align the measure with its own collateral rules, the people said.
Regulators at the Basel meeting will also discuss draft reports on how well the EU, the U.S. and Japan are implementing other parts of an overhaul of bank regulation agreed on by the Basel committee in 2010, according to two of the people.
The papers are part of a so-called peer review process intended to ensure that the measures, known as Basel III, are applied similarly in all major economies.
An interim report published by the Basel committee in June said that draft rule making in the EU, the U.S. and Japan was weaker that the globally-agreed standards. The final report is scheduled to be published before the end of the year.
Australia, one of the countries responsible for peer- reviewing the EU, has complained that Europe intends to grant its banks exemptions from parts of the capital rules.
The Basel committee brings together banking regulators from 27 nations including the U.S., the U.K., and China, to coordinate rule-making.
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
ECB President Mario Draghi
Hannelore Foerster/Bloomberg
ECB President Mario Draghi said in a closed-door session of the European Parliament in Brussels last week, the draft version of the LCR “strongly penalizes interbank lending.”
ECB President Mario Draghi said in a closed-door session of the European Parliament in Brussels last week, the draft version of the LCR “strongly penalizes interbank lending.” Photographer: Hannelore Foerster/Bloomberg
Sept. 10 (Bloomberg) -- Former U.S. Senator Phil Gramm, a Texas Republican who helped write the 1999 law that enabled the creation of financial institutions such as Citigroup Inc. and Bank of America Corp., talks about the outlook for the 2012 presidential election and the banking industry. He speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's "Market Makers." (Source: Bloomberg)
JPMorgan Chase & Co. CEO Jamie Dimon
Andrew Harrer/Bloomberg
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has said that the U.S. should consider withdrawing from the Basel committee and that the rules it sets are “anti-American.”
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has said that the U.S. should consider withdrawing from the Basel committee and that the rules it sets are “anti-American.” Photographer: Andrew Harrer/Bloomberg
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