Banks have been complaining bitterly that the original deadline of January 2015 was impossible to meet, given their current lending targets and the ongoing global downturn. Last night, the Committee agreed to give the banks a little wiggle room: the new ‘liquidity coverage ratio’ will be phased in from 2015, when banks will be expected to hold around 60% of the total buffer and the rule will only take full effect four years later, when the 100% buffer will be enforced.
The Committee has also agreed to be more flexible on the kinds of assets that banks can shore up to create this buffer. The new rule of thumb is that they simply need to be ‘easily sellable’, and shares and mortgage-backed securities will now count towards the total.
But regulators haven’t thrown the bankers a bone out of the goodness of their hearts: with the ongoing turmoil in the global economy, the Committee agreed that the original target ran the risk of throttling lending to consumers and businesses in the short term.
‘By introducing a phased timetable for the introduction of the liquidity coverage ratio, we will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery,’ says outgoing Bank of England governor and head of the Oversight Committee Mervyn King.
While this is certainly a coup for the banks, BBC business editor Robert Peston warns that too much flexibility could bring us back to square one. By allowing banks to include assets like corporate bonds, we’re veering away from the original plan – tangible assets only, please. ‘In particular,’ he says, ‘the inclusion of mortgage-backed securities will be seen by some as odd as these proved to be wholly illiquid and unsellable in the summer of 2007.’ One step forward, two steps backwards, Merv?