RBS, Lloyds Gain as Osborne Mulls Looser U.K. Liquidity Rules

U.K. Chancellor of the Exchequer George Osborne
U.K. Chancellor of the Exchequer George Osborne. Photographer: Tomohiro Ohsumi/Bloomberg

U.K. bank stocks rose in London trading after the Treasury said Chancellor of the Exchequer George Osborne is considering ways of easing liquidity rules imposed on banks.

Royal Bank of Scotland Group Plc, the biggest government-controlled lender rose 4 percent to 49.07 pence at 11.28 a.m., while Lloyds Banking Group Plc gained 2.8 percent to 69.04 pence and Barclays Plc 1.8 percent to 337.8 pence.

Banks sought to reduce the quality and amount of collateral needed during the so-called Project Merlin talks to restrain pay and boost lending, according to a Treasury spokesman, who cannot be named to comply with civil-service rules. The spokesman wouldn’t comment on how likely Osborne is to loosen the rules.

“Watering down the liquidity rules should be good for the banks with the weakest liquidity positions,” said Cormac Leech, an analyst at Canaccord Genuity Ltd. in London. “Given Lloyds generally weaker liquidity position the benefit of easier liquidity is likely to be greater.”

In October 2009, the Financial Services Authority introduced measures forcing banks to hold as much as 110 billion pounds ($177 billion) of government bonds to bolster lenders against another financial crisis. Barclays Plc, the first of the U.K. banks to report earnings, this week disclosed its liquidity pool rose 21 percent to 154 billion pounds in 2010 from a year earlier, costing the bank 900 million pounds. A spokesman for Barclays wasn’t immediately available to comment.

After the Project Merlin discussions that finished last week, Lloyds, Barclays, HSBC Holdings Plc and RBS agreed to pay lower bonuses to U.K. staff than last year and disclose the remuneration details of their five most senior employees below board level.

Those four lenders and Banco Santander SA. also agreed to make loans of about 190 billion pounds to companies to help bolster the U.K. economic recovery. A day before the Merlin deal was announced, the chancellor raised tax on the industry by 800 million pounds.

The plan to ease liquidity rules was previously reported by the Financial Times newspaper.