December 21, 2016 / 12:06 PM / 3 years ago

EU bank sector exceeds liquidity rules ahead of deadline

The famous euro sign landmark is pictured outside the former headquarters of the European Central Bank (ECB) in Frankfurt, Germany, July 17, 2015. REUTERS/Kai Pfaffenbach

LONDON (Reuters) - The European Union banking sector has complied with new liquidity rules ahead of a 2018 deadline and no extra time is needed to plug an 11 billion euro shortfall at a few banks, the bloc’s watchdog said on Wednesday.

The new rules, known as the liquidity coverage ratio (LCR), require banks to hold enough cash and top quality securities to last a 30-day outflow of funds in rocky markets.

Drawing on the lessons of the 2007-09 financial crisis, the aim is for banks to have enough cash on hand to meet any immediate demands without eating into their core capital or having to draw on taxpayer support.

The European Banking Authority said that at the end of December 2015, the EU bank sector’s average LCR was 134 percent, meaning the sector overall was well above requirements.

The aggregate shortfall was 10.9 billion euros from the sample of 194 EU banks from 17 of the bloc’s 28 member states, a fraction of the total amount held in LCR buffers.

The watchdog did not name any bank by result, but it did say that 90 percent of the banks sampled comply in full, with three not meeting the current minimum LCR requirement of 70 percent.

And most lenders with an LCR still below 100 percent were making full use of the existing phase-in period rather than not being able to fully comply ahead of the January 2018 deadline.

The current shortfall is driven by automotive and consumer credit banks, the EBA said, adding there was no strong evidence to suggest it should recommend a one-year extension to January 2019 for phasing in the LCR.

Reporting by Huw Jones; Editing by Alexander Smith

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