New liquidity rules risk international turf war between regulatory bodies
THE Financial Services Authority’s plans to implement new liquidity guidelines risks sparking a “turf war” between regulators, City sources warned yesterday.
UK financial institutions will have to hold greater volumes of liquid assets from the beginning of next year, with detailed guidelines due to be issued by the City watchdog in September.
But financial services consultancy Business Control Solutions (BCS) yesterday warned against rushing liquidity guidelines through.
“If we’re being that aggressive about liquidity, some other countries are going to lose out,” said consultant Nick Jepson, adding that there was a danger of an international “turf war” over the issue.
The British Bankers’ Association (BBA) said the FSA should seek international agreement before pressing ahead with its plans.
Tim Buenker, policy adviser to the BBA’s prudential and capital risk team said that the FSA risked “crowding out the availability of government bonds”, potentially sparking “regulatory retaliation” from foreign counterparts.
Buenker also warned that the requirements could hold back economic recovery.
“There are macroeconomic dangers that implementing the proposed Liquid Asset Buffer, which emphasises the holding of low yielding government bonds, will reduce banks’ ability to lend,” he said.
Independent think-tank JWG-IT estimates the cost for financials of implementing liquidity reporting standards at around £2.5bn.