The intention of regulators to reduce banks’
risk by introducing the
liquidity coverage ratio (LCR) could clash with shareholder
demands and the limited amount of high quality liquid assets
(HQLA) on the market.
The rule sets a minimum
standard of liquidity for banks during a 30-day period. The
US version requires the largest US banks to be fully compliant
by January 1 2017.
But concerns have circulated that the LCR will reduce
banks’ profits, possibly forcing them to take on a
more risk in other areas. Others have posited that the hefty
demands this will place on HQLA could force yields on those
As a consequence, banks may need to shrink their business
operations as a whole, something regulators are likely to
support. Banks could take on new kinds of risky investment to
make up for other profit losses and ensure...