U.S. banks add to call for easing liquidity rule
U.S. banks want regulators to ease a rule forcing them to hold large amounts of assets that can be tapped at short notice in a crisis, saying the buffers built up already should be enough.
The 2007-09 financial crisis saw lenders having to be shored up by taxpayers as funding markets froze, leaving banks unable to raise fresh money quickly.
Under a global accord known as Basel III, banks will have to comply with a so-called liquidity coverage ratio (LCR) rule from January 2015 and have a buffer of cash or easily-sellable assets to cover a 30-day funding squeeze.
This will be on top of the higher core capital buffers banks will have to hold under the Basel rules from January.
A slower-than-expected economic recovery has prompted banks to step up their campaign to ease the liquidity rule. They argue they can't boost credit to help drive economic growth at the same time as building up reserves at the rapid pace demanded by supervisors.
The Clearing House, a U.S. banking body, said on Monday compliance with the LCR rule was already at just over 80 percent.
The current shortfall is $840 billion, down $700 billion from the end of 2010, with eight of the 11 banks participating in the Clearing House study having a shortfall as of the second quarter of this year.
The Clearing House said if the rule was reconfigured, by for example relaxing the assumptions used to calculate the size of the required liquidity buffer, banks would be 100 percent compliant.
Banks say the current scenario is too harsh and unrealistic.
The LCR requires at least 60 percent of the buffer to be in top rated government bonds, the rest can be in corporate debt.
The Clearing House said greater flexibility on which assets are eligible would also help banks meet the LCR target now.
The Basel Committee of banking regulators from nearly 30 countries, including the United States, wrote Basel III and met last week to discuss easing the LCR.
It was unable to reach an overall deal due to differences of opinion, regulatory sources told Reuters on Friday.
Some changes are expected to be approved by the committee's oversight body sometime in the new year, with banking officials betting on less strict assumptions for calculating the buffer.
More flexibility over eligible assets is also anticipated, perhaps allowing shares and mortgage backed securities. The use of a phase-in period for the rule from 2015 and scrapping full compliance in that year, is also backed by some regulators.
Britain forced its lender early on in the crisis to build up liquidity buffers well ahead of the new international standards.
Those buffers have become so large that the Bank of England is allowing lenders to trim them back if the freed up money is lent to businesses.