Global regulators may ease new rules requiring banks to hold more liquid assets to weather a funding crisis amid lenders’ claims that the regulations may curtail lending, the Financial Times reported.
Members of the Basel Committee on Banking Supervision want to soften key technical definitions of the so-called “liquidity coverage ratio,” due to take effect in 2015, the newspaper reported, citing people familiar with the discussions.
Twenty-eight European banks faced a total liquidity shortfall of 493 billion euros ($694 billion) at the end of 2010 under the ratio’s current structure, which requires lenders to hold enough “easy-to-sell assets” to withstand a 30-day run on their funding, the FT report said, citing research by JPMorgan Chase & Co. Only seven of those lenders met the enhanced standards, according to JPMorgan.
“Whatever the technical adjustments that are made, we’re still going to see banks re-capitalizing in Europe quite significantly,” said David Gaud, a Hong Kong-based senior portfolio manager of Edmond de Rothschild Asset Management which had 15.4 billion euro of assets under management as of May 31. “If they soften the Basel rule, everybody will know it’s been softened which is not a fair reflection of the real risks.”
The changes being considered would effectively cut the liquidity levels banks would be required to hold and allow them to include more corporate and covered bonds, the FT said.
The Basel committee’s staff is gathering data on the potential impact of the ratio and a subgroup is working on definitions ahead of a full meeting of the group this month, the FT reported.
U.S. and continental European regulators are expected to push for changes to ease the impact on their banks, while the U.K., which introduced the rules in 2009, is said to support the status quo, according to the newspaper.