Financial Regulatory Forum

UK’s FSA says new liquidity rules hinge on economy

July 9, 2009

   By Kirstin Ridley
   LONDON, July 9 (Reuters) – Britain’s top financial watchdog said on Thursday it was on track for introducing tough new liquidity rules for banks from the fourth quarter, but full implementation would depend on the economic climate.
   The Financial Services Authority (FSA), whose consultation with the financial industry ends this month, said the timing of the second phase of the proposals has been cast into doubt by the worst recession in living memory.
  “Even though we’ve said we aim to have this (the second phase) in Q1 2010, if we are still in recession, we will not be bringing in the quantitative element,” an FSA spokeswoman told Reuters. “We will not be introducing anything that will make the current climate worse.”
   Banks have said the “quantitative” phase, under which banks will have to amass huge investments in safe securities such as gilts to help soften the impact of future crises, would be hard to achieve by the original target of the first quarter of 2010.
   But they have been betting on a relaxation of the timetable for the proposals, which are expected to slice billions of pounds off the industry’s annual profits and which the regulator hopes will force the industry to be self-sufficient in a crisis.
   Bankers beavering away in risk and compliance departments, dubbed “the men with the haunted look in their eyes” at a recent conference, have said FSA could delay implementing plans by as much as one year.
   “The biggest impact is the need to build up the buffer of liquid assets and, practically speaking, it may take time for institutions to re-adjust themselves to do that,” notes one veteran banker.
   “But we’re operating on the basis that it won’t be the first quarter (of 2010). The expectation is that it will be pushed out by some period of time — potentially, to the following year.”
    (For related story click on [ID:nL9609756])
    (Additional reporting by Huw Jones; editing by Elaine Hardcastle)
    ((kirstin.ridley@thomsonreuters.com; +44 207 542 7987; Reuters Messaging: kirstin.ridley.reuters.com@reuters.net))
 Keywords: LIQUIDITY BRITAIN/ 
  
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 Thursday, 09 July 2009 15:55:37RTRS [nL9647992] {EN}ENDS

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