The final fate of Basel III?

“There aren’t enough assets in the world that are genuinely liquid and of high enough quality to allow all the banks to meet this ratio,” said Barbara Ridpath, chief executive officer of the International Centre for Financial Regulation, a London research group funded by banks and the U.K. government. “And that’s only likely to get worse because of the changing credit quality of some of the sovereigns.”

The debt crisis also is leading some regulators to question rules that allow European lenders to apply zero risk-weightings to government bonds issued in a bank’s home currency when calculating capital ratios. Under current European Union guidelines, banks don’t need to hold any capital against the securities, even after the cost of insuring government bonds against default rose to a record last month.

Here is more.  One plan is to “to allow banks to use equities to meet the liquidity requirement.”  Get the picture?  How is this as a stunning sentence?:

“The cash sovereign bond market has been less liquid than many would have imagined,” Lakhani said. “At least equities remain a liquid asset class.”

Hat tip goes to @counterparties.


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