Monday, 7 January 2013

BIS ease bank liquidity rules. Who benefits most?

The BIS, Bank of International Settlements, announced a dramatic easing of its previously proposed bank liquidity rules. This is short term cash or quickly realisable assets that can be sold for cash to cover a run on the bank. All this was achieved without the control of the EU or the ECB but worldwide covering US, Japanese, UK, Swiss and other non-EU banks as well as EU banks. The US banks were the prime pushers for this relaxation of the draconian rules the EU and ECB wanted. The key difference is the deal was done by hands on well informed bankers not grand standing, dumb politicians. The main changes were summarised in today's FT thus.

'First, the full implementation has been delayed from 2015 to 2019; banks will only need to meet 60 per cent of the requirements by 2015.
Second, the assets. Previously, qualifying assets were mostly limited to cash, government debt, reserves at central banks and some corporate bonds rated AA- or higher. But now banks now can hold the following securities for up to 15 per cent (after haircuts) of their high-quality liquid assets:
- Corporate debt securities rated A+ to BBB– with a 50% haircut
- Certain unencumbered equities subject to a 50% haircut
- Certain residential mortgage-backed securities rated AA or higher with a 25% haircut

The biggest change from the previous EU backed propsals is the inclusion of residential mortgage backed securities but with a 25% haircut ie only 75% of the book value of these loans are included in the qualifying amount and crucially the banks have four more years to meet the requirements.

The main benificiaries will be the French banks who were struggling to meet their political masters previous rules. Will they thank the BIS, theYanks and the non-EU bankers for in fact bailing them out. Non! It was all an American mess in the first place.

I do have some mis-givings about these propsals. It looks like a return to the system that created the mess in the first place. You can read the full account on the BIS web site. Its a good job the BIS is headquartered in Basle not Frankfurt or worse Paris.

On UK politics I saw N Farage on today's BBC Daily Politics with Jo Co. I thought he did well aided by Tory Cheryl Gilllan against Ming and the awful Tessa Jowell. Ms Gillan did a very good job as NF's minder. Its a pity UKIP does not get this message but they don't have anybody as able as Ms Gillan.

The photographs of Dave and Nick renewing their partnership vows like a pair of homosexuals in Beardie's church was political farce of the highest order.

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