The Group of Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, met on 6 January to consider the Basel Committee’s amendments to the Liquidity Coverage Ratio (LCR) as a minimum standard and unanimously endorsed the amendments.
The GHOS agreed that the LCR should be subject to phase-in arrangements which align with those that apply to the Basel III capital adequacy requirements. Specifically, the LCR will be introduced as planned on 1 January 2015, but the minimum requirement will begin at 60%, rising in equal annual steps of 10 percentage points to reach 100% on 1 January 2019. This graduated approach is designed to ensure that the LCR can be introduced without disruption to the orderly strengthening of banking systems or the ongoing financing of economic activity.
The European Banking Federation has welcomed these revisions to the LCR and agrees that the LCR is an essential component of the Basel III reforms. The EBF has stressed that it has been one of the key concerns for Europe’s banks in the Basel III proposals, where the initial definition would have impacted most severely the capacity of banks to support economic recovery.
The Global Financial Markets Association (GFMA) has also welcomed the above decision and has commented as follows: “GFMA welcomes the decision by the BCBS to recognise that in practice there is a range of assets that can provide liquidity and the agreement reached should help to ensure there are not over-concentrations in eligible assets. GFMA welcomes especially the commitment from the BCBS to allow the inclusion of some forms of high quality securitisation to be eligible for inclusion in the buffer and has noted the strong performance of many of these assets during the crisis.”