Banks Win Basel Approval to Count ESM Debt in Liquidity Buffers

Banks will be allowed to count their holdings of debt issued by the euro area’s bailout funds toward meeting a liquidity rule set by global regulators.

The Basel Committee on Banking Supervision said that bonds issued by the European Financial Stability Facility and the European Stability Mechanism could be used in buffers of easy-to-sell assets that banks will be required to hold from next year. The buffer rule, known as a liquidity coverage ratio or LCR, is intended to make banks more resilient to funding squeezes.

Claims on the ESM and EFSF will be “included as Level 1 High Quality Liquid Assets” under the LCR, the Basel group said. The Basel committee also confirmed that the ESM and EFSF debt is seen as low risk, meaning supervisors can allow banks to purchase it without them incurring any increase in their capital requirements.

The 500 billion-euro ($695 billion) ESM is a permanent firewall fund, set up to finance crisis loans for indebted nations in the euro area. It has subscribed capital provided by the 18 governments of the currency bloc. The ESM supplanted the EFSF, a temporary agency created in 2010 as the bloc struggled to contain the repercussions of the Greek fiscal crisis.

To contact the reporter on this story: Jim Brunsden in Brussels at

To contact the editors responsible for this story: Anthony Aarons at Peter Chapman, Patrick Henry

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