RegTech Intelligence 
Today, 28 August, Mark Carney, Governor of the Bank of England, announced that UK banks compliant with Basel III capital buffers would receive marginal relief from liquidity requirements under CRD IV (read Carney’s announcement). However, the PRA have made clear this relief will only be temporary, since EU rules require full compliance by 2018 (read PRA statement). This adds to the number of recent implementation delays aimed at reducing the regulatory burden on institutions but which in fact fail to address the real issues, and rather fragment rulemaking and complicate compliance.
Under CRD IV, banks are required to hold a buffer of Tier 1 and 2 capital against their risk weighted assets (RWA). This has been set at 8% and is effective from 1 January 2014. In addition, banks must make sure they have sufficient liquid assets to cover their outflows over a period of 30 days (the Liquidity Coverage Ratio, or LCR) and over the course of a year (the Net Stable Funding Ratio). Here, Member States have discretion over the timeline for implementation. This has led to Carney’s announcement today that banks compliant with capital buffers will have their LCR capped at 80% (rather than 100%) of total net cash outflows until the EU releases technical standards for the implementation of the LCR in 2015. This means that banks will receive this relief until 2018 at the latest, but there will likely be a phase-in between 2015 and 2018.
As previously discussed, minor delays to rules rarely make a difference to banks’ implementation strategies, which have to be planned out well in advance of these last minute delays. Furthermore, any delay to the final rules is also a delay to certainty, as is the case here with the PRA stating that their future rulemaking will now depend on EU technical standards due in 2015. Thirdly, global firms will still have to implement the LCR across the rest of Europe and so are more likely to meet the UK deadline early than to incur costs by delaying their UK implementation while the rest of the institution pushes on. Finally, it’s the capital buffers, not the liquidity buffers that are currently causing UK banks the most problems, as evidenced by Nationwide’s recent constriction of its lending practices and bond repurchase programme.
If Carney wants to simplify the implementation of new liquidity rules, he should look instead at the spiralling numbers of liquidity reports being mandated by the EBA and the intensification of existing requirements, such as requiring granular look-through to the assets underlying large exposures (see Draft Regulatory Technical Standards on the determination of the overall exposure to a client or a group of connected clients in respect of transactions with underlying assets).
To conclude, any faith that this announcement will translate into increased capital circulation in the real economy is misplaced while rules continue to fragment, multiply and remain non-finalised. Political capital could be better spent rationalising and simplifying final rules than fiddling with interim requirements.