16 December 2012

FT: US banks call for easing of Basel III

US banks are making a last-minute push to ease new global liquidity requirements, arguing that they would need to come up with an additional $800 billion in easy-to-sell assets under the proposed standards.

“The US banking industry is significantly more liquid than it was even just two years ago”, said Bob Chakravorti, chief economist at the Clearing House, which represents the 11 largest US commercial banks.

A report by the Clearing House was shared with the Basel Committee on Banking Supervision before it met last week to discuss revisions to the global liquidity rule known as the liquidity coverage ratio. The standards must be approved by central bankers and supervision heads from the committee’s 27 member countries.

The LCR is aimed at making sure banks have enough funding and easily liquidated assets to survive a short-term market crisis that might include depositor runs and a lending freeze. But the US banks argue that the definition of liquid assets is too narrow and that the assumptions of what could go wrong are too harsh. They warn that increasing liquidity requirements will reduce their lending capacity and profits.

At the end of last year, the European Banking Authority estimated a €1.13 trillion shortfall for its large and mid-sized banks under the proposed LCR, which the European Central Bank also wants to relax.

UK banks are generally in a much stronger position because Britain enacted the industry’s first liquidity rules in 2009. According to the Bank of England, the country’s top five banks already have 13 per cent more liquid assets than required and will be able to shrink their buffers if the proposed Basel standard is eased.

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