Federal Reserve Board Proposes Liquidity Standards for Large Banks
The Federal Reserve Board proposed a new rule in October aimed at improving the liquidity position of large financial institutions.
One size not intended to fit all
"Liquidity is essential to a bank's viability and central to the smooth functioning of the financial system," Fed Chairman Ben Bernanke said during an open meeting to discuss the proposal. "The proposed rule would, for the first time in the United States, put in place a quantitative liquidity requirement that would foster a more resilient and safer financial system in conjunction with other reforms."
The proposal would implement the Basel III liquidity standards in the United States, but it is more stringent in some areas. For example, a narrower range of assets will qualify as high-quality, liquid assets; the proposed two-year transition period is shorter than that under the Basel agreement.
Moves made to complement previous enhancements
Banks will have until January 1, 2017, to be fully compliant with the new rule, which means having a liquidity coverage ratio of 100 percent.
The proposal, on which the Fed collaborated with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, will be open for comment until January 31, 2014.
October 30, 2013