The European Commission’s divergence from Basel III in critical aspects of the EU’s implementation of the Liquidity Coverage Requirement is a credit negative, according to Moody’s, which said that failure to achieve comparability of liquidity ratios globally is detrimental to EU banks.

The rating agency gave its verdict today (Thursday) on the rules released by the Commission on Friday.

“The Delegated Act not only waters down the Basel Committee’s international standard,” it said, “but also deviates from some of the recommendations of the European Banking Authority (EBA), which was keen to minimise the differences between the EU framework and the international standard.”

Moody’s acknowledged that transposition of Basel III was very challenging in the EU given national differences, noting, for example, the harm that could have been done to Danish banks if Basel III limitations on their eligibility had been imposed.

However, the rating agency highlighted the softening of the treatment of covered bonds in the Commission’s Delegated Act even beyond what had been recommended by the EBA, as well as the broadening of eligibility for securitisation assets, loose criteria for government bonds, and other measures that are more relaxed than in Basel III.

The rating agency noted that implementation has been put back from January 2015 to October 15, for which a 60% minimum threshold has been set, with full compliance required by January 2018.

“Nevertheless, this schedule is contingent on the European Parliament and the EU council not objecting to the delegated act,” added Moody’s. “An objection from either of the two bodies would amount to a major setback because the act would then have to go through the normal legislative process (the so-called trialogue), the completion of which would result in postponing the enforcement of the LCR until 2016 at best.”