The Basel Committee on Banking Supervision’s decision to allow banks to include highly rated residential mortgage-backed securities (RMBS) into their calculation of a new liquidity coverage ratio (LCR) is undoubtedly good news for European RMBS, which was at risk of losing its biggest buyers. Depending on how local regulators interpret the changes, however, they may offer less benefit than hoped for to banks in the United States.

Other new assets slated for inclusion in LCR calculation are corporate debt securities with ratings between BBB- and A+ and certain kinds of exchange-traded common equity.

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