March 19, 2020 / 5:06 PM / 14 days ago

U.S. regulators ease bank concerns over using liquidity, capital buffers

WASHINGTON, March 19 (Reuters) - U.S. banking regulators have publicly responded to several questions they have received from banks about how to utilize their liquidity and capital buffers during market stress, as part of their ongoing effort to encourage institutions to use some of those reserves to keep lending.

The responses posted Thursday show that regulators have been fielding questions from banks about how to properly dip into those buffers, what impact it could have on other rules they must follow and new emergency tools offered by the government. After significantly rebuilding their capital and liquidity reserves following the 2007-2009 financial crisis, regulators are now urging banks to use them after years of building them up.

“These capital and liquidity buffers were designed to provide banking organizations with the means to support the economy in adverse situations and allow banking organization to continue to serve households and businesses,” the regulators said in a statement.

The questions being answered are generally broad, fleshing out in detail what happens to banks that drop below minimum levels of their buffers. For capital, banks face increasing restrictions on automatic capital distributions like dividends to shareholders and executive bonuses. And for liquidity, banks are required to submit a plan to their supervisor detailing how they plan to restore the buffer in time.

According to the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, the largest banks currently have $1.3 trillion in common equity, and another $2.9 trillion in high-quality liquid assets. (Reporting by Pete Schroeder; Editing by Andrea Ricci)

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