BoE’s Saporta floats idea of countercyclical liquidity buffer
Design of Basel III rules may be causing banks to hoard capital and liquidity, official says
A countercyclical liquidity buffer could encourage banks to avoid cutting lending during downturns, Bank of England official Victoria Saporta said on July 14.
The BoE’s executive director noted that the Basel III liquidity coverage ratio (LCR) is a 100% requirement with no releasable element and no “hard minimum”.
The 100% threshold became the “primary focus” for banks during the Covid-19 crisis, encouraging them to cut lending rather than use the buffer, Saporta said. This exacerbated
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