Global Mega-banks appear to have won the day as their global regulator has watered down the implementation of liquidity coverage ratios and pushed out enforcement until 2019. Unfortunately our own Basel expert, Deep T, is still on a break, but I hope to get some comment from him next week on this.
In the meantime, here’s the report from Bloomberg.
Global central bank chiefs agreed to water down and delay a planned bank liquidity rule to counter warnings that the proposal would strangle lending and stifle the economic recovery.
Lenders will be allowed to use an expanded range of assets including some equities and securitized mortgage debt to meet the so-called liquidity coverage ratio, or LCR, following a deal struck by regulatory chiefs meeting today in Basel, Switzerland. Banks will also have an extra four years to fully comply with the measure.
“This was a compromise between competing views from around the world,” Bank of England Governor Mervyn King said at a briefing following today’s meeting. King chairs the Group of Governors and Heads of Supervision, or GHOS, which decides on global bank rules. “For the first time in regulatory history we have a truly global minimum standard for bank liquidity.”
Banks and top officials such as European Central Bank President Mario Draghi pushed for changes to the LCR, arguing that it would choke interbank lending and make it harder for authorities to implement monetary policies. Lenders have warned that the measure might force them to cut back loans to businesses and households.
“The new liquidity standard will in no way hinder the ability of the global banking system to finance a global recovery,” King said. “It’s a realistic approach. It certainly did not emanate from an attempt to weaken the standard.”
Yep, it’s a little hard not to be cynical on this one. Banks have argued since these rules were first suggest in 2010 that they would stifle recovery and inhibit their ability to support private sector growth, which may be true in part, but as we’ve seen from the ECB’s own banking surveys the issue is more demand than supply. With central banks across the world offering extremely accommodative policy support to their banking systems it is quite difficult not to see this as just another big win for banks at the expense of everyone else.
Hopefully we’ll get more from Deep T in the coming weeks.