For those who forgot to mark their calendars, January 1 marked the official start date of the Liquidity Coverage Ratio, which will be fully phased-in by 2019. The LCR aims to reduce bank vulnerability to runs by requiring lenders to hold a certain proportion of safe, easy-to-sell assets to offset their short-term obligations.
The easiest way for a bank to satisfy this requirement is to buy government debt and hold reserves with the monetary authority. In the US, domestically-chartered commercial banks hold about $600 billion in US Treasury debt — a shade less than 6 per cent of the total held by the public (excluding the Fed), as well as $1.5 trillion in cash and reserves at the Fed. Add in the $1.4 trillion of MBS guaranteed by Fannie and Freddie, which for regulatory purposes counts as a liability of the US Treasury, and you have roughly 28 per cent of the total value of domestically-chartered bank assets held in the form of safe and liquid securities. Read more
Are you a bank agonising over whether to keep your triple A-rated covered bonds as part of your liquidity buffer or send them to the European Central Bank? Not sure what to do with your AA-rated non-financial euro corporate debt?
Then you need this handy table from BofAML’s structured finance guru, Alexander Batchvarov. Read more
The Basel Committee on Banking Supervision has finalised rules for bank liquidity. Some of the changes had been anticipated in recent weeks, particularly after the US banks ramped up their lobbying efforts. That said, they’re still quite a big departure from the 2010 draft rules, especially on what qualifies as a high quality liquid asset.
The complete set of changes is on the BIS website, but here are some highlights. Read more
Also: why ‘maximum harmonisation’ might end up getting someone’s Vickers in a twist.
An odd bump in Lloyds and Barclays on Monday: Read more
Non-German readers won’t be able to read this article by a representative of the German finance ministry (except, perhaps, through the magic of Google Translate).
But we can summarise it for you. Read more
The UK government aims to kickstart a round of crucial asset sales with the auction of the Channel Tunnel rail link, used by Eurostar for its London-Paris route, for an estimated £2bn, reports Reuters, citing the Independent on Sunday. The Department for Transport and rail link owner LCR plan to provide potential bidders a sales document ahead of the UK’s emergency budget on June 22, the newspaper said.