Citigroup yesterday added its voice to the chorus of banking industry concern about the Australian Prudential Regulation Authority's proposed changes to liquidity rules.A senior economist at the bank, Josh Williamson, said that if APRA maintained the position on liquid assets it set out in its September discussion paper on liquidity risk, banks' cost of funds would come under further pressure.APRA says the current rules on liquidity risk provide little guidance as to what constitutes a liquid asset. "During the long period of benign conditions prior to the global financial crisis, APRA observed an inclination for ADIs to lower the quality of liquid asset buffers in a search for return."More recently, the working definition of a liquid asset seems to have become any asset which is eligible collateral with a central bank, regardless of the extent to which acceptance of such collateral could be considered an extraordinary central bank response to the crisis."APRA says the consensus among prudential supervisors is that liquid assets should be high quality assets that can be sold in private markets, even when those markets are under stress. Sovereign bonds "will be the assets that most clearly satisfy these criteria."Williamson said Citi's view was that government bond issuance next year would not be as great as some forecasters have suggested. Banks would be bidding up limited stock to meet the new liquidity rules and would be paying for their purchases with expensive funding from the capital markets. This would add to costs and put their margins under pressure.An unintended consequence of such a scenario would be that if banks sought to recover their costs by putting up their lending rates they would disrupt the Reserve Bank's monetary policy tightening.Citi country officer Stephen Roberts said incremental change to regulation was required but he expected to see some compromise before the new standard was finalised.