FSA says new liquidity rules hinge on economy

LONDON (Reuters) - The top financial watchdog said on Thursday it was on track to introduce tough new liquidity rules for banks from the fourth quarter, but said full implementation would depend on whether the country remains in recession.

The Financial Services Authority (FSA), whose consultation on the new rules with the financial industry ends this month, said the timing of the second phase of the proposals has been cast into doubt by the economic recession.

"Even though we've said we aim to have this (the second phase) in Q1 2010, if we are still in recession, we will not be bringing in the quantitative element," an FSA spokeswoman told Reuters.

Banks have said the "quantitative" phase, which introduces new mandatory minimum liquidity levels for all financial institutions operating in Britain, would be hard to achieve by the regulator's target of the first quarter of 2010.