Basel Targeted on Global Scale as Asian Banks Follow Denmark
By Frances Schwartzkopff, Alastair Marsh and Jim Brunsden
Europe’s biggest covered bond issuers are turning to Asia to rally support in what they say will become a global challenge to the Basel Committee on Banking Supervision. The European Covered Bond Council, whose members include HSBC Bank Plc (HSBA) and BNP Paribas SA (BNP), is looking to South Korea, Singapore and Australia to find allies in its efforts to persuade Basel to rewrite its liquidity rules. The group wants global regulators to grant covered bonds the same status as government debt, giving banks limitless scope to use the securities in liquidity buffers. “It’s a question of leveling the playing field,” Luca Bertalot, head of the Brussels-based ECBC, said in a phone interview. Covered bond issuers in Asia “have the same interests as we do.” Basel already views its proposal as a “concession” to covered bond issuers, Wayne Byres, the committee’s secretary general, said by e-mail. “As a general principle, all bank-issued securities — deposits, bonds and equities — are ineligible” for inclusion in the top liquidity bracket, he said. Basel acknowledges that some covered bonds — securities backed by collateral pools — are “less prone to illiquidity than other types of bank paper,” which is why the committee lets banks use them for 40 percent of their buffers, Byres said. Basel deems covered bonds inferior to government debt because “liquidity and credit risk are inextricable” as “assets covering the bonds are held by the issuing bank,” according to Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc.