Homeopathic regulation January 7, 2013 at 2:47 pm
The new revisions to the Basel III LCR do not, of course, water it down to homeopathic quantities, but I love the phrase so much I wanted to use it nonetheless.
- the definition of high quality liquid assets (HQLA) has been expanded to include lower-rated corporate bonds (A+ to BBB-);
- certain equities with 50% haircut
- as well as certain RMBS rated AA or higher with 25% haircuts.
- The aggregate of these additional assets are subject toa limit of 15% of the HQLA.
The Basel Committee has also agreed to a timetable for phase-in of the new standard. Banks’ LCR will need to reach 60% in 2015, increasing by10% p.a. until 2019, instead of a 100% requirement in 2015.
My snap judgement is that this can probably be met by most banks in the current liquidity environment. Whether it will act as a constraint later is less clear.