Banks round on LCR approach to derivatives collateral flows

The Basel Committee decided earlier this year to include collateral outflows arising from changes in derivatives values in bank liquidity requirements. Their suggested approach, however, has worried some in the industry. By Michael Watt

Regulators may have hoped for an end to questions about the liquidity coverage ratio (LCR). The Basel Committee on Banking Supervision’s most recent revisions in January seemed to answer the main concerns voiced by the industry – expanding the list of eligible assets while tweaking outflow estimates – but new ones are now emerging. The revisions also introduced a new paragraph requiring banks to consider the collateral impact from changes in derivatives valuations, and to hold liquid assets