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 Banks will have to hold a so-called liquidity buffer made up of top
quality assets akin to cash, such as government bonds, that can be
sold easily so that lenders can withstand short-term shocks unaided
by taxpayers.
The buffer, known as a liquidity coverage ratio or LCR, will be
phased in from 2015 with full compliance by 2019.
The European Banking Authority (EBA) said data provided by 357 banks
covering about two-thirds of total EU banking assets showed an
average LCR of 115 percent, or above what is required.
Some banking models make it easier to comply than others.
"The EBA is, therefore, proposing specific derogations for certain
business models under stringent and objective conditions," the
watchdog said in a statement.
Such leeway would be given to some consumer and auto finance firms
who have no deposits to draw on, while no mainstream bank is
expected to get an exemption.
EBA also endorsed the LCR definition agreed at the global level by
the Basel Committee, signaling resistance to calls to water it down.
Separately, the watchdog also published keenly awaited
recommendations on what should constitute two types of assets that
can be included in the LCR — "extremely high quality liquid
assets", and "high quality liquid assets".
At least 60 percent of the LCR must come from the first category,
the rest drawn from the second category.
The EBA said the top category includes all bonds guaranteed by
governments and central banks in the EU as well as those from
supranational institutions like the European Investment Bank.
NO DOOM LOOP DIFFERENTIATION
The EU bailed out stressed euro zone countries like Ireland,
Portugal and Greece but the EBA said all EU government debt would be
treated the same terms despite "some differences in the liquidity
features."
Differentiation in supervisory treatment would reinforce
fragmentation of the single market and the sovereigns-bank loop, EBA
said.
This refers to policymakers trying to weaken the so-called "doom
loop" between cash-strapped governments and their domestic banks
whose balance sheets are stuffed with their bonds.
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EBA said examples of second category of liquid assets include
covered bonds, residential mortgage-backed securities (RMBS),
corporate bonds, shares and local authority bonds.
Exclusion of covered bonds from the top category will disappoint
Denmark which has lobbied hard to get its large covered bond market
fully accepted.
"Despite the excellent liquidity features showed by some covered
bonds, doubts remain as to ... their inclusion in the category of
extremely HQLA," EBA said.
There was not enough data on how covered bonds stood up in times of
extreme distress.
Bankers are likely to be dismayed that only securitized debt
included in the second category is RMBS, having wanted a wider
selection for inclusion.
Securitization was tarnished in the financial crisis and bankers are
looking for official endorsement in order to help coax investors
back.
The EU's executive European Commission will use the recommendations
to draft a law next year on bank liquidity that will need approval
from the bloc's member states and the European Parliament, with some
changes likely.
(Reporting by Huw Jones; editing by
David Evans)
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