Basel Committee reportedly preparing to ease new liquidity rules; likely boon for US banks?
The Basel Committee on Bank Supervision is planning to dilute liquidity requirements for the world’s largest banks. According to a report in the Financial Times, a “growing number of members” of the Basel Committee want to weaken key technical definitions in the proposed liquidity ratio.
For the most part, much of the push to soften the rules seems to be coming from Europe, where banks continue to face massive exposures to countries seemingly on the brink – Greece, Italy, Spain and others all face immense sovereign debt problems.
This could be a possible boon to US banks as companies and other investors begin favoring European banks’ healthier (relatively speaking) US cousins. While it will ultimately have an impact on global banking – companies might shun bank lending altogether and go for alternative forms of funding – US banks are still in decent shape, according to a May Fitch report (see related story here). According to Fitch, US banks are “generally more liquid than Basel III liquidity standards as currently written would suggest.” So lower standards would only help; Fitch reports that softer rules would allow banks to “count more corporate and covered bonds toward the total.”
This goes against an earlier suggestion that European banks, allegedly having cinched up their balance sheets as prep for Basel II, would have an advantage over US banks (see related story here), which were thought to be far behind in their own efforts.
But evidence suggests otherwise. The FT report goes on to quote JPMorgan analysis that suggest the liquidity ratio, which require banks to hold enough assets to withstand a 30-day run on their funding, is too much for many European banks. According to the JPMorgan report, 28 European banks faced a total liquidity shortfall of 493bn euros at the end of 2010 under the ratio’s current structure. And only seven of those lenders met the enhanced standards, according to JPMorgan. And three of France’s biggest banks are among those least prepared for the requirements.
Back in April it was widely reported that JPMorgan Chase CEO Jamie Dimon had told a US Chamber of Commerce conference that new Basel regulations could be “the nail in our coffin for big American banks.” Now it seems Mr. Dimon was wrong only in his choice of continent.