U.K. Seeks Rejection of EU Bid to Scale Back Bank Liquidity Rule

The U.K. urged lawmakers to block European Commission proposals for applying a Basel bank liquidity rule, saying they may hamper efforts to bolster the banking system, according to a document obtained by Bloomberg News.

The commission’s compromise plan “significantly weakens” the standard, according to the U.K document, which was sent to members of the European Parliament. The U.K. recommends “rejecting” the proposal.

The measure, known as a liquidity coverage ratio, or LCR, would oblige banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze. The requirement was included by the Basel Committee on Banking Supervision in an overhaul of bank rules that was agreed on following the collapse of Lehman Brothers Holdings Inc.

The commission this week submitted a revised text on how the EU should apply the LCR in a bid to advance negotiations with governments and legislators on a draft bank law to implement the Basel rules in the bloc. The compromise plan would scale back reporting on whether they meet the liquidity requirement, according to a copy of the proposals.

The Basel committee has said that banks should report to regulators on how well they measure up to the LCR even before the standard becomes binding in 2015.

The U.K. warns that any scaling back of reporting requirements risks “sending an unintended signal to the markets” that legislators are so concerned by the liquidity position of their banks that they don’t want it to be revealed, according to the document.

Fine Tuning

The move would also “weaken the information” available to regulators as they seek to fine tune the LCR, the U.K. said in the document.

“Clearly we need to pay attention to a possible negative impact on lending to the real economy and on the interbank market,” commission spokesman Stefaan De Rynck said in an e-mail yesterday on the plans.

“Important discussions are going on at the level of the Basel Committee which will finalize its details on this in

2013.” The U.S. and Japan have delayed their implementation of the ratio “because of this.”

A review of the LCR in the Basel committee is unlikely to lead to major changes, according to the U.K. document.

Governments and the EU parliament must agree on the final wording of the Basel-implementation law before it can take effect in the 27-nation EU.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE