Watchdog's breathing space for banks

Banks were given more breathing space yesterday when regulator the Financial Services Authority said it would not demand higher liquidity levels until the economy is recovering properly.
By The Newsroom
Published 9th Mar 2010, 10:59 BST
Updated 9th Mar 2010, 10:59 BST

The FSA angered banks last year by pushing ahead with a new liquidity regime requiring then to hold buffers of cash or highly-liquid assets like government bonds to withstand market shocks for a week or more without having to raise fresh capital.

The watchdog began rolling out the new regime last October, which includes frequent reporting of liquidity levels as part of wider efforts to learn from the financial crisis and lessen the need for more massive taxpayer bailouts.

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It had been expected to ratchet up the requirements sometime this year – in a boost to the UK gilts market – if economic recovery was assured but the bounce back has been anaemic.

"The FSA believes that it would be premature to increase liquidity requirements across the industry at the current time.

"This position will be reviewed later on in the year with a further announcement in Q4, 2010," the FSA said in a statement.

"Meanwhile, the FSA is continuing to work with firms that are most affected by the new regime focussing on the steps they are taking to mitigate liquidity risk and on the additional impact of our progressively tightening quantitative requirement," the FSA said.

The British Bankers' Association welcomed the FSA's delay.