Tug-of-War over Basel Committee Liquidity Rule (LCR) in Europe

Last Sunday, the Basel Committee announced that it plans to defang a rule that requires banks to maintain easy-to-sell assets. They committee also extended the compliance date to 2015, at which time banks will only be required to meet 60% of the required liquidity.

The liquidity coverage ratio (LCR) has been the persistent target of the banking lobby for months. The watered down requirements, which allow banks to count a wider array of riskier assets toward a required liquidity buffer, demonstrate a major victory for the banking lobby.

“The rule in its original shape,” reports the WSJ, “would have forced banks to hold enough liquid assets to cover all their expected outflows over a 30-day period in 2015. That deadline is now put back to Jan. 1, 2019, and banks will only have to show a ratio of 60% in 2015. Importantly, banks will now be able to use certain equities, corporate debt and residential-mortgage-backed securities to cover up to 15% of their LCR.”

But Does the Basel Rule Matter?

Surprisingly, what was being hailed as a victory for banks may only be a pyrrhic one. National supervisors have now told bankers that they cannot relax already attained compliance with the Basel Committee’s LCR rule.

From Risk:

But one asset and liability manager at a large European bank says he arrived at his desk on Monday morning – the day after the LCR announcement – to find an email from his national supervisor stating that the country’s implementation plan would not be changed. Another liquidity manager in a second European jurisdiction tells a similar story.

Read more.

About The Author

Elan Mendel

Elan Mendel is an associate with Shipkevich PLLC, and has done registration, compliance, and enforcement defense work for commodities, futures and forex firms registered with the CFTC and NFA as FCMs, RFEDs, and others. Elan also specializes in domestic and cross-border insolvency issues.