Most major banks have sufficient lines of liquidity in place
to meet two key ratios according to the latest Basel III
Figures published this week show that 87.9% of
large international banks already met or exceeded the final LCR
minimum requirement at the end of June last year.
LCR, short for the liquidity coverage ratio, was introduced
see whether a bank could survive a 30-day liquidity shock set
at a fairly extreme level.
It requires banks to maintain a stock of high-quality liquid
A ratio of 60% was set in 2015, increased to 70% in 2016 and
will continue to rise in equal annual steps to reach 100% in
The gradual phase-in has led to an increase in various types
of structured transactions to help extend short-term cash-flow
projections beyond the prescribed regulatory metrics.
Securities lending with maturity terms, collateral upgrades
and swaps transactions are among them.
The second liquidity standard, NSFR, is a longer-term
structural ratio that addresses liquidity mismatches and
provides incentives for banks to use stable sources to fund
Banks have until the start of 2018 to meet the NSFR
standard. The proposed US rule has same January 1 effective
In its latest report, the Bank for International Settlements
(BIS) said that 84% of major banks already exceeded the 100%
ratio with a weighted average NSFR of 114% at the end of
The aggregate NSFR shortfall for major banks below the 100%
NSFR requirement was €108.6bn compared to €234.5bn in
Last year the ICMA said impact of the NSFR, if simply
adopted exactly as outlined by the Basel Committee, would
create significant additional stress and weaken the
effectiveness of the repo market; and, given their interwoven
relationship, the collateral market.
Netting of repo and reverse repo for purposes of the NSFR
has been an area of ambiguity since the NSFR was first
Earlier this week the Basel Committee issued the second set of frequently asked questions
and answers on NSFR providing some clarity by approving
netting of securities financing transactions in certain