October 9, 2011 7:08 pm

Banks to be forced to boost liquid assets

Global banking regulators will press ahead with the first worldwide effort to force banks to hold more liquid assets and cut back the industry’s reliance on short-term funding, despite complaints that the rule changes could damage the broader economy, the new chairman of the Basel Committee on Banking Supervision has warned.

In his first interview since taking the chairmanship, Stefan Ingves, who also heads the Swedish Riksbank, or central bank, told the Financial Times that the Basel group plans to put uniform implementation of the Basel III reforms at the top of its agenda. That deal, which was struck last year by the 27 member countries will force banks to hold more top quality capital against unexpected losses, but there are rising concerns that some countries will not stick to the agreement.

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“It is going to be all about implementation in as uniform a way as possible. Balkanisation of the rules over the long term is not in anyone’s interest,” Mr Ingves said.

The committee plans to publish “heat” maps that show which countries are in compliance. It will also send out teams of experts to look at whether each country’s implementation laws and regulations live up to the letter of the agreement.

“What matters here is transparency. You will get a clear picture of what is going on in different countries and that will create peer pressure,” he said.

Balkanisation of the rules over the long term is not in anyone’s interest

- Stefan Ingves

The Basel group is still hammering out the details on two liquidity rules – the liquidity coverage ratio, which would require banks to hold enough liquid assets to survive a 30-day crisis, and the net stable funding ratio, which would force financial institutions to use more long-term funding.

Mr Ingves, 58, said he expected both rules to be finalised and approved, despite industry efforts to get them watered down or put off. “There is a strong argument that the [LCR] is the right way to go...We have just decided to speed up the review, and some of the technical details have to be worked out. I don’t see any dilution in this. The basic ideas are sound.”

“We will end up with an NSFR...The basic concept is supported,” he added.

Mr Ingves’s stance is sure to disappoint the US and French bank executives who have been deluging regulators with complaints that the Basel III package could harm the global economy and unfairly discriminates against their business models.

“When you start making changes in regulatory frameworks, the impact will be felt somewhere. Otherwise it wouldn’t be real,” he said.

“Everybody gains from designing a safer system,” he added.

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