Bank liquidity ratio clashes with shareholder demands

Author: Zoe Thomas | Published: 15 Sep 2014

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 assets lower.

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...



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