Basel regulators believe crisis far from over-source

By Thomas Atkins

ZURICH, Oct 5 (Reuters) - The global credit crisis is far from over and may come in waves, a source close to the Basel Committee on Banking Supervision said on Friday.

Regulators from around the world will meet next week to discuss what the source described as the "hard-core liquidity crisis" which has forced central banks to inject billions of dollars in emergency liquidity into the banking system.

But the source, who declined to be named, said the Basel Committee was unlikely even to discuss suggestions that central banks should become market makers of last resort when liquidity dries up, saying such an idea is out of the question.

Stock markets have hit record highs in recent days due to optimism that the worst of the credit crisis may be over, while primary U.S. bond markets and some loan markets have revived following the Federal Reserve's interest rate cut on Sept. 18.

But regulators on the Basel Committee are less optimistic as they gather in the Swiss city. "In banking and in supervisory circles, this crisis is far from over," said the source. "This crisis may unfold itself in waves."

The Committee will put the liquidity crisis, in which banks have been largely unwilling to lend to each another, at the top of its agenda, the source said.

"Liquidity hasn't played a big role so far but now we can see that we have a hard-core liquidity crisis," said the source. "This is something that has very rarely happened before ... where banks don't trust each other."

Liquidity -- or lack of it -- is one of the top risks for banking institutions, but rulebooks such as the international Basel II accord which the Committee drew up have focused instead on capital requirements.