Resources for Basel II Capital Accord (Basel II)

FSA Official: Basel II Liquidity Provisions "Underdeveloped"

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The liquidity requirements in the Basel II regulator rules are clearly "underdeveloped" and regulators need to address this, an official at the U.K.'s Financial Services Authority said Tuesday.

"It's pretty clear that has been underdeveloped," said Thomas Huertas, head of the FSA's banking division.

Huertas, who was speaking at a panel on the Euromoney Bond Investors Congress in London, said the FSA is taking a two-pronged approach to liquidity requirements.On one hand, banks need to have a "good view of the inflows and outflows" from their institution, "including outflows that may be required to support conduits or structured investment vehicles."

At the same time, institutions need to ensure they have sufficient stock of cash or instruments that can be readily converted into cash "even under circumstances of extreme stress."

He said the liquidity requirements would need to be robust enough to deal with challenges that could arise if the current strains in the credit markets and the financial sector were to intensify.

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