Basel: pragmatism out of stock Regulatory idealism versus pragmatism. Ask bank executives which assets were easiest to liquidate in the scramble for cash following Lehman's 2008 collapse, and they will say equities, as well as the most liquid government debt. Ask regulators what they'll allow in liquidity buffers and the answer still does not include stocks. Basel's oversight committee met on Sunday amid hopes that it could allow some use of stocks and even securitisations. This didn't happen, although it may yet. Banks, and investors, should hope it does. What regulators want are banks stuffed full of top-rated assets which always have a market and don't lose value in stressed conditions. This is a limited pool whose exact contents are subject to change. The emphasis must be on spreading risk for an in-case-of-emergency fund like this. No one can be sure where the next danger will come from. That argues for a wide range of quality assets in case one group is tainted by crisis. Stocks and securitisations should only be marginal factors in liquidity buffers. But the holding of some of the most liquid stocks - say, S&P 500 constituents and their equivalents - and the best prime mortgage-backed securities would open another funding route, should it be needed. Regulators already allow covered bonds - a market which dried up so badly in 2009 that the European Central Bank stepped in to the tune of up to €100bn. The meeting did confirm that banks would be able to dip into the buffers in times of stress, so long as they have a plan for rebuilding. This is welcome, if only practical. But that practicality could go further. The liquidity buffer itself is a good idea - ask UK banks, who resented being forced by their regulator to adopt them early but now admit relief they had them. But the buffers will not work properly, and risk distorting markets, if they are not also pragmatically constructed.