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
On Friday, the FSA has published its feedback and responses to a review of the Financial Services Compensation Scheme funding model issued back in July. It’s long. Lucky for us then that we were looking for one thing and one thing only — the stance on “pre-funding”.
The revised Liquidity Coverage Ratio of course! Read more
Being cross about the Basel III liquidity ratio is so in season. One just can’t be seen dead smiling about it. It simply won’t do. Much better to join the other banks, and the ECB, in being all pouty about it. We’ll not even have the slightest smirk until the Basel Committee has agreed to loosen the criteria for eligible assets and made the outflow scenarios a lot less Beyond Thunderdome. Read more
Banks will be required to hold emergency stocks of easy-to-sell assets starting in 2015 but will be permitted to dip into these liquidity buffers during times of stress, according to regulators meeting in Basel, says the FT. The top central bankers and regulators from 27 major economies firmly rejected industry pleas for a delay or substantial rewrite of the controversial planned “liquidity coverage ratio” that will require banks to hold buffers against a 30-day market crisis. The governors and supervisors who oversee the Basel Committee on Banking Supervision said they would decide by the end of this year whether to include more assets in the buffer, an alteration the industry has pressed for. The committee made clear that the Basel rules would operate similarly to the UK’s liquidity standards already with regard to banks dipping into their buffers. The Bank of England said in November that banks have been permitted to dip into their buffers when markets freeze as long as they have a credible plan for returning to the required minimum.
The Basel Committee on Banking Supervision may diminish the central role of government bonds in planned banking rules, reports Bloomberg, citing two people with direct knowledge of the plans. The Basel committee may let banks use equities and more corporate debt, in addition to cash and sovereign bonds, to satisfy new short-term liquidity standards. However regulators face a difficult balancing act between acknowledging investors’ loss of confidence in sovereign bonds, and making changes that could reduce demand for European government securities, adding to the funding stress on some nations. The Basel’s liquidity coverage ratio requires banks to hold enough “high-quality liquid assets” to survive 30 days of stress, and is due to be introduced in 2015. As the rules stand, at least 60 per cent of those assets must be in cash or securities underwritten by governments and central banks.
Global bank regulators are preparing to ease new rules that would require banks to hold more liquid assets to withstand a funding crunch in a crisis, says the FT, citing people familiar with the discussions among members of the Basel Committee on Banking Supervision. A growing number of members on the committee now want to soften key technical definitions in the “liquidity coverage ratio”. The move follows complaints from banks that the new Basel III standards on liquidity – the first international rules of their kind – would force them to sharply curtail lending to consumers and businesses. US and continental European regulators are expected to push for changes that would ease the impact on their banks, while the UK, which pioneered the first national liquidity rules in 2009, is said to support the status quo. No changes to the ratio have been finalised, and discussions are continuing. The full committee meets later this month.
Lorenzo Bini Smaghi.
The European Central Bank executive board member may not be a friend of analysts who ponder a Greek default, but he had some wise old words this Wednesday on the problems banks face in Basel III ‘s liquidity rules. Read more