11 February 2013

Bloomberg: EU Banks may need to hit Basel liquidity targets early

Nations are weighing calls from the European Parliament for an “accelerated” introduction of the so-called liquidity coverage ratio, according to the document, which was drawn up by the Irish government and is dated February 8.

The EU has struggled to agree on legislation to apply Basel III, as governments and the EU Parliament clashed on a range of issues including curbing banker bonuses, capital rules for systemically important banks, and the liquidity requirements.

The international 2019 start date for the liquidity ratio was part of a package of proposed rules decided by central bank chiefs last month meant to water down the standard amid concerns that it could harm interbank lending and stifle a nascent economic recovery. Global regulators had previously planned to implement the requirement fully from 2015.

 “Acceleration of the timetable would be a negative” for European banks, said Simon Willis, a London-based banking analyst at Daniel Stewart Securities Plc. “At the start of the year there was talk about the timetable for liquidity rules being postponed, which pushed bank stocks a lot higher. Anything to the contrary would be seen negatively.”

Basel regulators said last month that phasing in the LCR from 2015 to 2019 would ensure that it could be introduced without disrupting an orderly strengthening of the banking system or the financing of the economy.

An agreement between governments and EU lawmakers on the overarching Basel III package is “close”, according to the document. Still, “there are a number of outstanding issues where there remains a clear divergence of views".

A majority of EU nations back a January 1 2014 date to begin the phasing in, while some others would prefer a longer timetable, according to the document. Ireland is proposing that the beginning of 2014 should be fixed as the start date, on condition that the legislation can be agreed upon and published at least six months beforehand.

Other open issues in the Basel law talks include how much freedom governments should have to impose additional capital rules on their banks, and how these measures would interact with a system of capital surcharges for systemic lenders that is sought by the parliament, according to the document.

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