The measures will be considered at a meeting of the Basel Committee on Banking Supervision on March 20 and 21, Rene van Wyk, who represents South Africa’s central bank on the committee, said in an interview.
The Basel group will “present some calibration points and technical calculations” without changing the “fundamentals” of the standard, he said. The group will also work on options for toughening oversight of lenders whose failure could roil domestic markets, he said.
The so-called liquidity coverage ratio is part of an overhaul of bank regulation, known as Basel III, that was agreed on by the committee to avoid a repeat of the events that led to the 2008 collapse of Lehman Brothers Holdings Inc. It would require lenders to hold enough easy-to-sell assets to survive a 30-day credit squeeze.
The LCR plans have been attacked by some governments and banks as overly restrictive as few assets other than sovereign debt would be recognized as highly liquid.
The Association for Financial Markets in Europe, which represents international banks including Deutsche Bank AG (DBK), BNP Paribas SA (BNP) and UBS AG (UBS), has said that the measure may make it harder for lenders to spread their risks, so making them more vulnerable in a crisis, while also forcing them to curb some lending.
Privileged Treatment
The “privileged treatment” of sovereign debt in the LCR has “less and less justification,” said Markus Heidinger, a partner dealing with financial regulation at law firm Wolf Theiss in Vienna. “It increases the interdependency between states and banks, and leaves private and commercial borrowers out in the rain,” he said in an e-mail.
The LCR is scheduled to become binding on banks by the start of 2015.
South African lenders “seem to be short about 260 billion rand ($34.5 billion),” in the liquid assets they would need to meet the LCR, said Van Wyk, South Africa’s registrar of banks. The figure is based on the assumption that five significant banks would simultaneously have a ‘run’ by their depositors, he said.
The run would be part of the hypothetical scenario used by regulators to judge whether lenders are holding enough liquid assets to cope with a stressed situation.
Danish Mortgages
Denmark has said that the LCR, in the form proposed by the Basel committee, would cause severe damage to its mortgage market.
The Basel committee brings together bank regulators from 27 nations including the U.S., U.K. and China to set prudential rules for lenders.
Van Wyk said regulators at this month’s meeting will also discuss another proposed liquidity rule, known as a net stable- funding ratio, that would force banks to finance part of their long-term lending from sources that are unlikely to dry up in a crisis. The ratio is scheduled to become binding on banks at the start of 2018.
It is “probably unlikely” that all South Africa’s banks can find the stable funding they would need to fully meet the NSFR standard, he said. “We’re not alone,” he said. “We have a task team looking at it and seeing if we can close the gap.”
Regulators next month will begin joint probes into how well Basel III is being implemented in U.S., EU and Japan, Van Wyk said. These so-called peer reviews will be completed by June. Basel accords need to be enshrined in national laws before they can be applied.
To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net Jim Brunsden in Brussels at jbrunsden@bloomberg.net
To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net; Edward Evans at eevans3@bloomberg.net
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