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U.S. bank regulators join Fed in proposing liquidity rules
October 30, 2013 / 6:58 PM / 4 years ago

U.S. bank regulators join Fed in proposing liquidity rules

WASHINGTON (Reuters) - Two U.S. bank regulatory agencies on Wednesday released a plan to require big banks to hold enough assets that they can easily sell in a credit crunch, joining a proposal floated last week by the Federal Reserve.

Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, gestures as he testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on "Mitigating Systemic Risk Through Wall Street Reforms" on Capitol Hill in Washington July 11, 2013. REUTERS/Yuri Gripas

The Fed’s board of governors unanimously voted on October 24 to propose requiring banks under its jurisdiction to meet new liquidity standards two years before most foreign banks must comply under international rules.

The Federal Deposit Insurance Corp (FDIC) and Office of the Comptroller of the Currency (OCC) approved similar proposals on Wednesday.

“The recent financial crisis demonstrated that liquidity risk can have significant consequences to large banking organizations, with effects that spill over into the financial system as a whole and the broader economy,” FDIC Chairman Martin Gruenberg said during a public meeting.

“With a dedicated pool of liquid assets on hand, banks will be in a stronger position to withstand stressed financial environments,” he said.

The two agencies said in a statement that the version they proposed was “substantively the same” as the Fed’s proposal.

Liquidity rules aim to make sure banks have enough cash to meet customer withdrawals by requiring them to hold minimum amounts of assets that are highly liquid, or easy to sell.

The rules are a key aspect of the international Basel III agreement to bolster banks after the 2007-2009 financial crisis.

The Fed, OCC and FDIC must implement the agreement in the United States. Their proposal, which is released for comments from the banking industry, calls for banks to stock up on liquid assets by 2017, two years earlier than the Basel rules required.

The U.S. version also includes a tougher definition of what counts as highly liquid assets and stricter standard for how banks should calculate their liquid asset needs.

The rules apply to banks that have more than $250 billion in assets, such as JPMorgan Chase and Goldman Sachs Group. Community banks would not have to comply, the regulators said.

Reporting by Emily Stephenson

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