SECRETARIA DE ESTADO DE ECONOMIA Y APOYO A LA EMPRESA MINISTERIO DE ECONOMÍA Y DIRECCION GENERAL DE POLÍTICA ECONOMICA COMPETITIVIDAD '$' UNIDAD DE APOYO CUADERNO DE DOCUMENTACION Número 99 ANEXO II Alvaro Espina 25 de Octubre de 2013 ENTRE 11 Y EL 24 DE OCTUBRE DE 2013 Legal/Regulatory October 24, 2013, 5:10 pm 24 Comments Fed Proposes a Rule to Help Big Banks Stay Liquid in Times of Crisis By PETER EAVIS Jim Lo Scalzo/European Pressphoto Agency The Fed’s Board of Governors discussed a plan to make banks hold a set amount of liquid assets. During the financial crisis of 2008, the big banks fell dangerously short of cash, forcing them to take out enormous government loans to survive the tumult. To help prevent another giant cash squeeze, federal regulators proposed a rule on Thursday that requires big banks to hold a set amount of assets that they can quickly turn into cash. The hope is that, in times of turbulence, banks will have adequate funds to replace the cash that might be leaving them at a rapid clip. The new rule, known as the liquidity coverage ratio, is the first to systematically require banks to be in a position to cover a set amount of cash outflows. The rule is intended to complement new rules on capital that focus more on making banks resilient to losses on loans and securities. “The proposed rule would, for the first time in the United States, put in place a quantitative liquidity requirement,” Ben S. Bernanke, chairman of the Federal Reserve, said in a statement. He added that it “would foster a more resilient and safer financial system in conjunction with other reforms.” The liquidity rule works by asking large banks to estimate how much cash might flee in a 30-day period. They then have to have enough assets that they could quickly sell to cover that outflow. The requirement, scheduled to come into full effect at the start of 2017, could dent the profits of banks, particularly Wall Street firms that rely on huge amounts of short-term market borrowing. Still, regulators are concerned that the big institutions remain vulnerable to bank runs. And based on comments from prominent banking regulators on Thursday, banks should expect additional measures. “In some sense, this is just a big but only first step down the road to achieving that durability of funding,” Daniel K. Tarullo, the Fed governor who oversees regulation, said at a board meeting on the rule. The new liquidity ratio, which was conceived by an international grouping of bank regulators soon after the crisis, addresses a thorny dilemma at the heart of modern banking. For decades, central banks have been willing to provide emergency loans to their banking systems in times of stress, recognizing that bank runs can do terrible damage to the wider economy. But if banks come to expect that their central bank will always act as a lender of last resort, they might be encouraged to take excessive risks. The support “creates potential moral hazard problems,” Jerome H. Powell, a Fed governor, said. The new rule “puts private liquidity in front of the taxpayer,” he said. Darrell Duffie, a finance professor at Stanford, said: “The new rule is a measured response. It says, ‘We’re still here as a lender of last resort, but we want you to be more self-reliant.’ ” Analysts expect that most large banks would already comply. The industry and other parties have 90 days to comment on the rule. But the operations of large foreign banks are also subject to it, and some of them may have to do more. Some foreign banks have already criticized the Fed for making their United States operations follow more stringent capital rules than they might face at home. If foreign regulators are planning liquidity rules that are more lenient than the American one, foreign banks could step up their lobbying of the Fed. In calculating how much liquidity is needed, safe and liquid assets like Treasuries would count at full value. But assets like stocks and corporate bonds would not because their prices might fall in a panicked market. The top quality assets have to account for at least 45 percent of the liquid asset pool. Though some Wall Street firms may already comply with the liquidity rule, they may still find the adjustment difficult. Broker-dealers are still dependent on short-term funding, which is effectively targeted by the rule. Goldman Sachs, for instance, finances two-thirds of its assets with shorter-term market borrowings, based on an analysis of its latest securities filing. In particular, the new rule might reduce the profitability of a practice that is common on Wall Street, according to Robert Maxant, a partner at Deloitte & Touche. Brokers provide loans to clients to buy securities. To obtain the money that it lends to a client, a broker takes out its own loan, pledging securities as collateral. To ensure it 2 profits on the arrangement, the broker needs to get more in interest on the client loan than it is paying on its own loan. To achieve this, the broker typically takes out a loan that is of a shorter term than the client’s loan. But the new rule could penalize a bank that uses this approach because it assumes the broker’s short-term loan would evaporate in a crisis, and a shortfall would occur that would need to be covered. Amassing the liquid assets to cover the shortfall adds a cost to the brokerage business. “The regulators have been very concerned about short-term funding,” Mr. Maxant said. http://dealbook.nytimes.com/2013/10/24/new-liquidity-rule-proposed-to-guard-against- cash-squeeze/?emc=edit_tnt_20131028&tntemail0=y&_r=0 An Encouraging Start to the ECB’s Big Bank Review by Nicolas Véron | October 24th, 2013 | 01:29 pm The European Central Bank (ECB) just announced its planned review of the largest banks in the euro area, before assuming direct supervisory authority over these banks in early November 2014. (March 1, 2014, had been initially envisaged as the date for this transfer of authority from the national to the European level, but various institutional squabbles have delayed it by eight months.) This communication marks the concrete start of a year-long review process that will be the make-or-break test for Europe’s banking union, which itself is arguably the most important structural change the crisis has prompted in Europe so far. The ECB’s announcements do not have any major surprises, but they help clarify the review process. To echo Article 33.4 of the EU Single Supervisory Mechanism Regulation [pdf], the legal basis for the new supervisory role of the ECB, which is expected to be published in final form within two weeks or so, the exercise is called Comprehensive Assessment, a bland label that will probably not end the minor semantic confusion that has affected it. Many market participants like three-letter acronyms and refer to it as the AQR (Asset Quality Review), while others use the term “stress tests” to echo the spring 2009 Supervisory Capital Assessment Program [pdf] in the United States and the successive (and ill-starred) rounds of capital simulations conducted in 2009 [pdf], 2010 and 2011 in the European Union. In fact, the AQR and stress tests will be two separate components of the Comprehensive Assessment, plus a third one called “supervisory risk assessment,” which remains loosely defined for now but appears to focus on liquidity and funding patterns. 3 The Comprehensive Assessment will be conducted over the next 12 months. This is a very long period of time for such a market-sensitive process but is justified both by the large scale of the endeavor (the ECB describes it grandly but aptly as “the largest such exercise ever undertaken in terms of the number of banks, their overall size, and geographical reach”) and by the lack of prior supervisory experience at the ECB. The AQR will be based on balance sheets as of end-2013, an early cutoff date that is welcome as it reduces the risk of aggressive credit contraction by banks over a long period of time, which would have weighed negatively on European growth. The ECB will use an 8 percent threshold for the minimum capital requirement, corresponding to the 7 percent reference of the Basel III Accord (4.5 percent so-called core equity tier one capital + 2.5 percent so-called conservation buffer), plus a 1 percent surcharge as all banks are considered of systemic importance. This is a reasonable yardstick for capital adequacy and marks an acceleration of the long Basel III transition period as enshrined in the European Capital Requirements Regulation. In addition, the ECB will introduce a leverage ratio, also in reference to Basel III but in anticipation of EU legislation. The ECB has published a tentative list of 124 banks to be reviewed, which it reckons represent an aggregate 85 percent of the euro area’s total banking assets; 18 of these are local subsidiaries of non-euro-area banks (from Canada, Denmark, Russia, Sweden, Switzerland, the United Kingdom, and the United States). The list also includes a few government policy banks such as France’s new Banque Publique d’Investissement and Germany’s KfW IPEX import-export promotion bank; financial arms of carmakers (PSA Peugeot Citroën, Renault, and Volkswagen); two subsidiaries of financial infrastructure firms (LCH.Clearnet in France and Clearstream in Luxembourg); and 15 banks that were nationalized during the crisis (including Allied Irish Banks, ABN Amro, Bank of Cyprus, Bankia, Dexia, and Hypo Real Estate).