New Fight Brewing Over Basel III, This Time Over Liquidity Requirements

By Donna Borak

The largest U.S. banks are quietly preparing to push back against proposed Basel III liquidity requirements that they argue could wreak havoc in the market by artificially deflating the value of certain assets. Until now, most of the focus on the international accord has been on proposed capital standards, but JPMorgan Chase & Co. is spearheading an effort to help persuade regulators of the potential harm as a result of the so-called liquidity coverage ratio. The bank, along with others, is expected to present a white paper to the agencies within the next few months to change what they say is a very conservative rule that would lead to a raft of unintended consequences. Industry observers agree it is a significant issue. “The liquidity rule is designed to show how much cash on hand do you have to meet any calls that you might have for it,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. “These runoff rates never materialized during the crisis. The way the runoff rates are calibrated puts a tremendous amount of stress on the bank in ways they don’t think is warranted.”