By Shahien Nasiripour in New York
US lenders are urging financial regulators to ease new international bank liquidity rules as the industry faces a collective shortfall of $1,400bn for complying with the regulations.
American banks are at a disadvantage to their foreign peers because the regulatory response to the financial crisis limits the kind of assets US companies can use to show they could withstand a 30-day bank run, the Clearing House, the oldest US banking lobby group, argued in a letter to Tim Geithner, US Treasury secretary.
The reforms, known as Basel III, include a rule that requires banks to hold enough cash-like assets to survive a month-long crisis. Lenders in the US and in Europe have argued that the ?liquidity coverage ratio? is too stringent and would limit lending.
The Clearing House reckons that European regulators will interpret the laws in a way that disadvantages US banks, continuing an argument that has begun to gather steam in the US.
?Equally troubling, from a competitive standpoint, is that European regulators are providing themselves with the flexibility to separately address flaws in the [liquidity] framework and to remedy policy defects that could provide beneficial treatment to European firms,? the consortium wrote.
In advance of Basel III capital rules mandating surcharges for the largest and most interconnected global banks, Jamie Dimon, chief executive of JPMorgan Chase, in September attacked them as ?anti-American?.
Mr Dimon and his peers eventually lost that battle as global banking regulators stood firm. Now, the industry
has set its sights on weakening the liquidity rules.
The Clearing House urged US regulators to relax implementation of the Basel standards because they unfavourably treat debt and mortgage securities issued by US-controlled mortgage giants Fannie Mae and Freddie Mac.
While cash and sovereign debt can be used to meet the entire liquidity requirement, Fannie and Freddie securities, covered bonds and high-quality non-financial corporate bonds can only count towards 40 per cent of it.
US lenders are concerned that European regulators will eventually loosen the rules and allow institutions under their charge to use covered bonds to fulfil the requirement beyond the 40 per cent limit.
?It is extremely important that the US regulators show the same flexibility that regulators in other countries are showing,? the Clearing House said.
Though US banks are fearful that Europe?s supervisors will buckle to pressure from the industry, the Europeans have not yet indicated they will relax this rule. Fannie and Freddie securities are ?generally regarded as more ?liquid than covered bonds.
The liquidity rule will not come into effect until 2015. In response to complaints from lenders, financial regulators agreed to fine-tune the liquidity standards, where needed, by 2013.
? The Financial Times Limited 2011