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Abstract
Bank liquidity experts say they have already been told by their national supervisors that they will not be allowed to relax compliance with Basel III's liquidity coverage ratio (LCR), despite the new, staggered timeline agreed by senior supervisors and central bankers at a meeting on January 6. The hope among policy-makers was that phasing in the LCR would allow banks that have already built up the required liquidity buffers to shrink them again, thus allowing more lending. The LCR requires banks to hold enough liquid assets to cope with a 30-day period of funding stress. The LCR has been controversial since it first appeared in proposal form in December 2009, with early criticism focusing on the restrictive list of assets that would be allowed into the buffers -- initially dominated by government bonds and cash.