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Banks told liquidity rule won't be dismantled
September 21, 2011 / 3:35 PM / 6 years ago

Banks told liquidity rule won't be dismantled

FRANKFURT/LONDON, Sept 21 (Reuters) - Banks must not assume a tough new liquidity requirement aimed at ensuring they can better withstand a crisis will be watered down, a top regulator said, as lenders continue to push for a loosening in planned crackdowns.

The global Basel III bank capital and liquidity accord is being phased in from 2013. There is no sign the capital rules will be relaxed and many lenders already meet them.

Industry is pushing hard to gut a liquidity rule that will force them to hold enough cash-like instruments to withstand a month of severe outflows.

“There is no suspension clause,” said Jose Maria Roldan, director general of banking regulation at the Bank of Spain and a member of the Basel Committee that authored the new rules.

“There is a review clause in case there are unintended consequences. Investors are a bit too relaxed,” Roldan said.

Bankers were very good at criticising weak points in proposals but not so good in offering alternatives, he added.

The European Union has begun turning Basel III into law, a process that will last well into next year.

Adam Farkas, executive director of the European Banking Authority (EBA), which will flesh out the law with 40-50 binding technical standards, said the 2013 implementation date remains fixed.

“The approach of the EBA is to apply Basel requirements in the strictest sense, ” Farkas told a financial conference in Frankfurt.

“Banks will be left with a very short time to implement the rules, and that is a concern,” he added.

Farkas said the rules will be “proportionate” or tailored to the different types of banks in Europe, a sensitive task that will be decided “at the political level”.

“There are still arguments that the rules should not be applied to all financial institutions,” he added.

The EU is applying Basel III to all its 8,000 banks while the United States is only applying it to a few top lenders.

A European banking official said the industry hopes the EU law will be delayed because the euro zone debt crisis is making it harder for banks to build up capital and liquidity buffers.

“It’s a hard implementation date in 2013 and banks are going to get squeezed in the middle,” the official said.

NAME AND SHAME

The Basel Committee meets next Tuesday and Wednesday to finalise a plan to force the world’s biggest banks to hold up to 2.5 percent capital in addition to the Basel III minimum.

JPMorgan Chase Chief Executive Jamie Dimon attacked the surcharge as “anti-American” last week and suggested the United States should leave the Basel Committee, a claim rejected by regulators at the Frankfurt conference.

Deutsche Bank (DBKGn.DE) Chief Financial Officer Stefan Krause said the bank had received positive signals from the United States concerning implementation of Basel III.

Krause said regulators, not Dimon, would decide, adding that a worldwide implementation of Basel III was crucial.

The Basel Committee is expected to submit its finalised plan for extra buffers for political approval by G20 world leaders in November.

Next week it will also launch a study into whether banks measure assets for calculating capital buffers in a consistent way across the world.

This follows another complaint from Dimon earlier this year that European banks were aggressive in applying risk weightings to calculate buffers, meaning they needed less capital than U.S. rivals.

The impact of Basel III on trade finance will also be on next week’s agenda as UK banks argue the accord should give a more lenient risk profile to the lifeblood of global commerce.

Roldan warned the “world does not finish with Basel III” as there will be “peer reviews” of how regulators are implementing the accord to ensure proper risk management.

“I know of no peer review that does not end up in a name and shame exercise,” Roldan said. (Additional reporting by Philipp Halstrick; Editing by Helen Massy-Beresford)

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