U.S. Fed unveils bank liquidity plan tougher than Basel rules
(Reuters) – The U.S. Federal Reserve unveiled a plan on Thursday that requires banks to hold enough assets they can easily sell to survive a credit crunch, a proposal it said was tougher than that demanded by international regulators.
The plan, which will tell banks to hold enough liquid assets to meet their cash needs for 30 days, is a key plank of the Basel III capital rules agreed globally to make banks safer after the 2007-09 credit crisis.
But Fed Governor Daniel Tarullo said the U.S. plan had a tougher transition timeline, and a stricter definition of what counts as the high-quality liquid assets the central bank will require the lenders to stock up on.
“Since financial crises usually begin with a liquidity squeeze that further weakens the capital position of vulnerable firms, it is essential that we adopt liquidity regulations,” Tarullo said in a speech.
Fed staff estimate a rough shortfall of about $200 billion in liquid assets across all institutions as a result of the rule, a gap the banks would have until 2017 to address.
The Fed’s board adopted the proposal at a formal public meeting in a unanimous vote, and banks will now have 90 days to submit comments, which the board may take into account when it finalizes the rule.
The rule would apply in full to banks with $250 billion or more in assets, and not at all to banks with less than $50 billion in assets. The banks that fall in between would be subject to a less stringent version of the rule.