New liquidity rules risk international turf war between regulatory bodies

THE Financial Services Authority&rsquo;s plans to implement new liquidity guidelines risks sparking a &ldquo;turf war&rdquo; between regulators, City sources warned yesterday.<br /><br />UK financial institutions will have to hold greater volumes of liquid assets from the beginning of next year, with detailed guidelines due to be issued by the City watchdog in September.<br /><br />But financial services consultancy Business Control Solutions (BCS) yesterday warned against rushing liquidity guidelines through.<br /><br />&ldquo;If we&rsquo;re being that aggressive about liquidity, some other countries are going to lose out,&rdquo; said consultant Nick Jepson, adding that there was a danger of an international &ldquo;turf war&rdquo; over the issue.<br /><br />The British Bankers&rsquo; Association (BBA) said the FSA should seek international agreement before pressing ahead with its plans.<br /><br />Tim Buenker, policy adviser to the BBA&rsquo;s prudential and capital risk team said that the FSA risked &ldquo;crowding out the availability of government bonds&rdquo;, potentially sparking &ldquo;regulatory retaliation&rdquo; from foreign counterparts.<br /><br />Buenker also warned that the requirements could hold back economic recovery.<br /><br />&ldquo;There are macroeconomic dangers that implementing the proposed Liquid Asset Buffer, which emphasises the holding of low yielding government bonds, will reduce banks&rsquo; ability to lend,&rdquo; he said.<br /><br />Independent think-tank JWG-IT estimates the cost for financials of implementing liquidity reporting standards at around &pound;2.5bn.