LCR: special focus

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The liquidity coverage ratio (LCR) is global regulators' ground-breaking benchmark to encourage banks to build-up large quantities of high-quality assets. Thanks to the Basel Committee's U-turn surrounding the timeline for implementation and composition of assets, some market anxiety has been dissipated but fundamental questions remain unresolved.

The LCR is the first-ever attempt by regulators to introduce a global unified framework that ensures that banks possess a pool of ostensibly liquid assets for at least 30 days during a liquidity crisis, without recourse to central bank support.

Notoriously, when the LCR was framed in December 2010, it required banks to build up large buffers of high-quality liquid assets, tightly and rather conveniently at a time of investor outflows from sovereign debt, to protect against a rapid flight of deposits and short-term funding in a crisis.

Banks complained they were being compelled to hold low-yielding and capital-consuming government debt with dubious liquidity and credit profiles, restricting earnings and organic capital building while constraining capacity to lend to the economy. 

However, triggering fear and cheer, in equal measure, in January, the Basel Committee backed down to a degree, accepting that the earlier framework was excessive, and has now permitted a broader pool of assets, including ABS, and a more relaxed implementation timeline for the landmark liquidity framework.

Recent Euromoney LCR coverage

Schizophrenic regulators killing securitization
April 2013

BoE King throws another grenade into bank-regulation debate in bid to shape legacy
March 2013

Lighter rules to lift lending
March 2013

International cash management banks adapt to a tough new world
March 2013

Supply chain finance: The chain takes the strain
March 2013

New liquidity rules prompt mutual back scratching between banks and corporates
February 2013

Basle committee: Regulators climb down over liquidity
February 2013

Critics see regulatory capture in new LCR
February 2013

Trade finance fears remain despite Basel shift
January 2013

Mervyn King, Bank of England governor and chairman of the oversight body at Basle
Mervyn King, Bank of England governor and chairman of the oversight body at Basel
Mixed messages from Basel on ABS in Europe
January 2013

Liquidity management debate: Liquidity management in an age of anxiety
September 2012

Time to row back on bank regulation?
March 2012

Can ABS rescue Europe’s bank-funding market?
March 2012

Liquidity management debate: Preserving liquidity in a challenging world
September 2011

Debt markets: Funding back in the balance
June 2010