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European Commission

MEMO

Brussels, 7 January 2013

Statement by Commissioner Michel Barnier on the impact of the latest Basel Committee liquidity developments for Capital Requirements (CRD 4) in the EU

(in the light of the Group of Governors and Heads of Supervision (GHOS) meeting and the Basel Committee on Banking Supervision press release dated 6 January 2013)

"I welcome the unanimous agreement reached by the Basel Committee on the revised liquidity coverage ratio and the gradual approach for its phasing-in by clearly defined dates. This is significant progress which addresses issues already raised by the European Commission. We now need to make full use of the observation period, and learn from the reports that the European Banking Authority will prepare on the results of the observation period, before formally implementing in 2015 the liquidity coverage ratio under EU law in line with the Basel standards.

The treatment of liquidity is fundamental, both for the stability of banks as well as for their role in supporting wider economic recovery. I now call upon the Parliament and the Council to successfully conclude the CRD 4 trilogue negotiations in the coming weeks."

Context

The Basel Committee on Banking Supervision (BCBS) has agreed a package of LCR (liquidity coverage ratio) revisions unanimously as well as its 2013 work plan. The LCR revisions include an expansion of eligible assets, a less severe calibration for certain cash flows and a phasing-in arrangement from January 2015 to 2019 (See BCBS press release).

The current Commission approach to liquidity in the CRD4 negotiations, namely first a reporting period followed by comprehensive European Banking Authority (EBA) Reports and subsequently a delegated act by the Commission to define the detailed ratio remains fully valid.

Background information

The Commission's approach to liquidity in CRD 4 still remains valid in the light of the latest Basel Committee approval of the revision of a number of parameters and calibrations on liquidity (GHOS meeting of 6 January). In the Basel Committee, the European Central Bank, the European Commission and various countries including from the EU had argued for such a revision.

At the level of the Basel Committee, the final package of LCR revisions will now be subject to an observation period with a Quantitative Impact Study (QIS) that will take place in 2013 together with some other important work that still needs to be completed in the coming year.

The EU needs to take full benefit of this observation period and learn from it, as this is the first time in history that regulators are defining globally harmonized, quantitative liquidity standards. The EBA will make reports on the results of the observation period for EU banks before the end of 2013. Based on the evaluation of this work, the Commission will propose defining the detailed LCR through a delegated act (i.e. legislation adopted by the Commission provided no objections are raised by the EP and the Council).

Nevertheless, important work still remains to be completed at the global and European levels. This includes the determination of alternative, market-based indicators for the definition of High Quality Liquid Assets (HQLA); the treatment of Central Bank facilities which could impact upon the definition of HQLA and related cash flows; and the treatment of market valuation changes on derivative cash flows. In this light, the best course continues to be rapid adoption of the CRD 4 package while leaving the necessary flexibility to implement the final detailed LCR standard through a delegated act, taking into account the on-going work by Basel and the comprehensive EBA reports.

Subject to this approach, the texts on the table now of the European Parliament and Council should be adopted shortly, hopefully in the coming weeks.


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