EBA欧洲银行-20121002_BSG_Liquidity_Paper_incl_amendment_80页_2mb

Summary of "New Bank Liquidity Rules: Dangers Ahead"

Core Content

This document, authored by the EBA's Banking Stakeholder Group, presents a critical analysis of the new liquidity rules introduced under the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD4), focusing on the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The paper argues that while the intention of these rules is to enhance financial stability, their implementation may have unintended consequences on the European real economy, particularly Small and Medium Enterprises (SMEs) and credit availability.

Main Acronyms and Abbreviations

• BCBS: Basel Committee on Banking Supervision
• BSG: Banking Stakeholder Group
• CET1: Common Equity Tier 1
• CRD4: Capital Requirements Directive 4
• CRR: Capital Requirements Regulation
• DGS: Deposit Guarantee Scheme
• EBA: European Banking Authority
• ECAI: External Credit Assessment Institutions
• HQLA: High-Quality Liquid Assets
• IIF: Institute of International Finance
• IRB: Internal Ratings-Based
• LCR: Liquidity Coverage Ratio
• NSFR: Net Stable Funding Ratio
• SME: Small-Medium Enterprise

Key Issues and Concerns

1.1 Overview of Liquidity Rules and EBA Role

• The CRR and CRD4 are part of a broader regulatory reform initiative following the 2009 De-Larosière Report and the Basel 3 accord.
• These rules aim to create a consistent and integrated regulatory framework for liquidity management across the EU.
• The EBA plays a central role in calibration, impact assessment, and technical guidance for implementing the new rules.

1.2 The LCR: Expected Impact and Scope for Calibration

• The LCR requires banks to hold sufficient High-Quality Liquid Assets (HQLA) to cover net cash outflows over a 30-day stressed period.
• The LCR shortfall for EU banks exceeds €1.15 trillion, with a 15% increase from 2009 to 2011.
• This shortfall could lead to crowding out of productive investments, as banks may prefer to hold LCR-eligible assets over loans and other less liquid instruments.
• Corporate bonds, covered bonds, and asset-backed securities may be under-recognized as eligible assets, limiting their use in supporting corporate and consumer financing.
• The definition of liquid assets is crucial, as it influences market behavior, asset demand, and future liquidity conditions.
• Overly conservative rules may lead to investment concentration, higher risk, and systemic instability.

1.3 The Report Structure

• Part 1: Introduces the need for calibration in liquidity rules, emphasizing the micro vs. macro liquidity distinction and the economic implications of the LCR and NSFR.
• Part 2: Focuses on adjustments to the LCR numerator, including the eligibility of liquid assets and the impact on credit risk weights for government debt.
• Part 3: Discusses adjustments to the LCR denominator, including net cash outflows from customer deposits, credit facilities, and trade finance.
• The report calls for collaboration between regulators, financial institutions, and stakeholders to ensure effective and balanced implementation.

1.4 Time to Sound the Alarm

• The LCR is not meant to enable banks to survive independently, but to buy time for supervisory intervention.
• A "bulletproof jacket" approach may impose a straightjacket on banks, making credit more expensive and undermining economic growth.
• Shadow banking may emerge as a consequence of tighter regulation, which could be pro-cyclical and less regulated.
• Reliable data is essential for calibrating the rules, and transparent sharing of such data is necessary to avoid systemic risks.

Main Viewpoints and Key Information

Impact on Banks

• The LCR shortfall has increased by 15% from €1 trillion in 2009 to €1.15 trillion in 2011.
• Banks are increasing their liquidity buffer but this is offset by rising net outflows, especially from retail, SME, and non-financial corporate sectors.
• The LCR could lead to deleveraging of loans and reduced credit availability, especially for low-risk sectors like trade finance.
• The NSFR may also lead to higher interest rates and weaker long-term finance for non-financial sectors.

Impact on the Economy

• SMEs are most vulnerable to the new liquidity rules due to their limited access to alternative financing.
• Credit to SMEs may become more expensive and less available, impeding economic growth.
• Liquidity rules may shift funding from productive uses to "safe" assets, reducing real economy support.
• Systemic risk could increase if the rules are too rigid, as liquidity can only be ensured by monetary authorities during crises.

Call for Calibration

• Calibration is essential to ensure market alignment and reduce unintended consequences.
• Flexibility in defining liquid assets and net cash outflows is needed to accommodate changing market conditions.
• A "black and white" approach to liquidity is inadequate and may lead to unintended risk concentration.

Conclusion

• The new liquidity rules, while aiming to enhance financial stability, may have negative economic impacts, especially on SMEs and credit availability.
• Collaboration between regulators and stakeholders is critical to ensure balanced and effective implementation.
• Calibration of the LCR and NSFR is necessary to align with market practices and minimize systemic risks.