Banks' complaints about the unfairness of UK liquidity rules seem to be receiving a sympathetic ear. But where's the unfairness?
Was Project Merlin even better for the banks than thought? Investors bet that way after an FT report said chancellor George Osborne is sympathetic to banks' grumbles that the UK's rules on liquidity are too harsh. Is that what was meant when the Merlin document said the government was committed to "the creation of a level playing field internationally for UK banks"?
Bewilderment is the only logical reaction to the idea that the liquidity rules could be up for debate already. Are memories of the banking crisis so short?
The Financial Services Authority's liquidity regime was tightened only in 2009 to ensure that banks have sufficient liquid assets – cash, gilts and other sovereign IOUs – to manage their way through a three-month crisis.
The rules, of course, are costly for the banks, at least when compared with pre-crisis standards: hoarding low-yielding assets is expensive. The banks' argument is that lending to UK businesses would be so much easier if these towering mountains of cash, as they might characterise them, could be put to work more productively. Well, yes, that is true. But it is also true that having insufficient liquidity in the banking system can be costly – especially for taxpayers.
The point is that the regulators did not pluck the new liquidity calculations out of thin air. They were attempting to set a sensible middle course between conflicting aims and tailored their thresholds on a bank-by-bank basis. It is amazing the Treasury could so soon contemplate putting pressure on the FSA to rethink – which, one assumes, would be the only way to force change.
But maybe Osborne hasn't challenged the assumption that the playing field is somehow tilted against the UK banks. This notion is widely asserted as fact but it is hard to find supporting evidence. Barclays, when it reported its full-year results this week, gave a figure for its liquidity coverage ratio of 80%. That compares to an average, according to the Basel Committee on Banking Supervision in a study of 263 banks in 23 countries last December, of 83% for big banks. Where is the unfairness?