EUROPE – Residential mortgage-backed securities (RMBS) are to be included among the liquid assets banks may hold as a buffer against losses, the Basel Committee on Banking Supervision said this week.
The move – which has been welcomed by banks despite a moribund European RMBS market – ranks the securitised structures alongside government debt in a sub-category of liquid assets below risk-weighted sovereigns and cash.
Tier-2 assets may account for as much as 40% of the eventual buffer.
The inclusion of RMBS, albeit at a discount to value, comes with two caveats.
To be counted as HQLA assets, they will have to be rated AA or higher, and they come with a minimum 25% haircut, compared with a 50% haircut for corporate bonds, also included for the first time.
Describing the liquidity coverage ratio – the buffer – as "an essential component" of the Basel III reforms, governor and head of supervision (GHOS) chairman Mervyn King, the UK central bank governor, told a press conference the decision to amend the previous HQLA list had been unanimous.
"This is a very significant achievement," he said. "For the first time in regulatory history, we have a truly global liquidity standard for banks."
Basel III's creation of new 2B assets is a relaxation of what had broadly been considered prohibitive categories drafted in 2010.
The refined ratio will not be introduced until January 2015.
Even then, said King, the minimum requirement would be 60%, increasing 10% annually until 2019.
The idea is that the gradual approach will ensure the coverage ratio could be introduced with minimum disruption to banking systems and economic activity.
In a statement, King also suggested banking systems would have "complete flexibility" in their management of LCR in a crisis, even if that meant they fell below the minimum coverage threshold.
