Covered bonds backed by relatively high quality mortgages should count towards banks’ liquidity buffers as a means of getting credit flowing to the real economy, according to John Cridland, director general of the Confederation of British Industry.

The comments were made in an interview with the Financial Times published yesterday (Thursday), in which Cridland urged the UK coalition government to do more to boost the country’s economy.

He said that relaxing liquidity rules to allow banks to include covered bonds, backed by relatively high quality mortgages, as part of their liquid asset buffers could generate £300bn (Eu379bn) of lending to business and consumers.

Under Basel III liquidity rules covered bonds are eligible as Level 2 assets for banks’ liquidity buffers, with the European Banking Authority in charge of deciding the criteria by which the eligibility of different assets for liquidity coverage ratios will be judged under CRD IV in the EU.

The UK’s Financial Services Authority published an enhanced liquidity regime in October 2009, but a little more than one year later issued a “Calibration Statement” that pointed to developments at the level of the Basel Committee on Banking Supervision and said that it had therefore decided not to set industry-wide transition requirements for UK banks.