Monday, October 28, 2013

Contradictory Financial Regulations Cause Problems

by Iain Murray on October 25, 2013
It’s a case of “When Regulations Collide.” As we’ve seen in the energy field, contradictory regulations cost jobs as employers struggle to comply with legal requirements that tell them to do one thing on the one hand and the opposite on the other. Now we’re seeing another example in the field of financial regulation, as regulators face a dilemma between state rules and supranational rules known as Basel III.
The issue in question relates to regulations over a bank’s Liquidity Capital Ratio (LQR). At one point ratios such as this were helpful tools for investors to judge the health of a company. These days, they are the subject of regulations. The LQR will be a requirement for a certain amount of liquid capital to be held by a bank to back its liabilities. Of course, the definition of “liquid capital” can be hazy, so Basel III involves several complex ways of assessing the liquidity of capital. Some mortgage-backed securities will meet this standard…..To Read More….

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