Bloomberg: Basel Group to Consider Fine Tuning of Draft Bank Liquidity-Rule Changes

A global banking regulator has said that the Basel Committee for Banking Supervision is planning to consider these same changes at its meeting on March 20-21. Finadium has released a report analyzing the details of these changes as well. The following article excerpts were published by Bloomberg.

Global banking regulators will seek an accord later this month on changes to draft liquidity rules criticized by some governments and lenders as a threat to economic recovery.

The measures will be considered at a meeting of the Basel Committee on Banking Supervision on March 20 and 21, Rene van Wyk, who represents South Africa’s central bank on the committee, said in an interview.
The Basel group will “present some calibration points and technical calculations” without changing the “fundamentals” of the standard, he said. The group will also work on options for toughening oversight of lenders whose failure could roil domestic markets, he said.

The so-called liquidity coverage ratio is part of an overhaul of bank regulation, known as Basel III, that was agreed on by the committee to avoid a repeat of the events that led to the 2008 collapse of Lehman Brothers Holdings Inc. It would require lenders to hold enough easy-to-sell assets to survive a 30-day credit squeeze.

Privileged Treatment
The “privileged treatment” of sovereign debt in the LCR has “less and less justification,” said Markus Heidinger, a partner dealing with financial regulation at law firm Wolf Theiss in Vienna. “It increases the interdependency between states and banks, and leaves private and commercial borrowers out in the rain,” he said in an e-mail.

The LCR is scheduled to become binding on banks by the start of 2015.
The Basel committee is caught between the fact that “pushing banks to have all their liquidity in government bonds does not make sense in light of the sovereign debt crisis, and the fear of destabilizing a fragile market for sovereigns,” said Jesper Berg, senior vice president at Nykredit A/S, Denmark’s biggest mortgage bank.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net Jim Brunsden in Brussels at jbrunsden@bloomberg.net

The original article is here

The executive summary to Finadium’s report, Corporate Bonds and Equities as High Quality Assets for Collateral Management and Bank Balance Sheets, is here.

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