By Huw Jones
LONDON, April 3 (Reuters) - Banks are overly reluctant
to tap their cash buffers in volatile markets, fearing adverse
reaction from regulators and markets, and changes to the rules
may be needed, the Bank of England said on Monday.
Regulators have long worried about banks not tapping their
mandatory safety buffers in market crises to avoid choking the
flow of credit, such as when economies went into lockdowns in
March 2020 to fight COVID-19.
Volatility in banking shares after the collapse of Silicon
Valley Bank and UBS' takeover of ailing Credit Suisse last month
threw a spotlight on liquidity buffers.
"It is important that banks feel able to draw on their
liquidity, as appropriate, to reduce the risk of destabilising
actions that could cause unnecessary adverse impacts on the
wider economy and financial system," the Bank of England said on
Monday as it published industry responses to a discussion paper
on liquidity rules.
The BoE said it has been concerned that banks may be overly
reluctant to draw on their so-called Liquidity Coverage Ratio
(LCR), a buffer of cash and high quality bonds to withstand a
month of outflows.
Lenders told the BoE they are concerned about regulatory
reactions to initial falls in their LCRs.
"In addition, most respondents noted that banks allowing
LCRs to fall would be perceived by the market as a signal that a
bank is experiencing a liquidity stress."
The BoE should spell out during market stress the extent to
which LCRs can fall, and how much time banks have to rebuild
them, respondents said.
The LCR could be calibrated differently during market
stress, such as by expanding the range of assets, the
respondents said.
Sam Woods, head of the BoE's banking supervision arm, told
parliament last week that LCR calibration might now be an
international policy question for regulators.
The rules were written by the global Basel Committee of
banking regulators, which includes the BoE, but tweaking them
rules can take time without strong consensus for action.
(Reporting by Huw Jones)
Messaging: huw.jones.thomsonreuters.com@reuters.net))
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.