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MEPs call for flexibility on liquidity ratios

Thursday 21 July 2011 - by Jacqui Street

Bowles says she would like to see the EBA take a "broader view" when assessing liquidity requirements.

She is glad the EBA will have time to consider issues around liquidity.

"It is quite right not to fix things in stone in legislation in a way that can't be changed. We do have to have some ability to be flexible and look at things, although I can understand from an industry point of view they are frustrated if there are not set rules.

"But I am more concerned that we have something that works."

Karas has previously said he does not agree with concentrating liquidity into certain asset classes and has called for diversification and "partial flexibility" in the design of the LCR.

He now says it is too early to tell how the parliament and the EBA will move to define eligible assets.

British MEP Vicky Ford says the definition should be carefully considered because classifications of different bonds can vary wildly between member states.

Ford says she is also worried about creating artificial demand for certain assets.

"If the legislation says that you can use covered bonds as liquid assets, you push up demand for the covered bonds. That will mean there is greater issuance and that will then have an impact on real estate lending.

"Over-lending in real estate markets is part of the reason that Spanish banks got themselves into problems and almost entirely the reason why Ireland is in the situation they are in."

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