Banking regulators finalize liquidity rules

Financial regulators on Wednesday finalized a set of new liquidity standards designed to protect the banking sector against a repeat of the economic crisis.

The regulations will for the first time require big and internationally active banks to adopt minimum standards regarding their ability to access cash quickly in a period of economic stress.

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The rule, adopted by the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, is in line with standards proposed by global regulators in the aftermath of the 2008 downturn.

“As the financial crisis demonstrated, most of our largest and most systemically important financial institutions used excessive amounts of short-term wholesale funds and did not hold a sufficient amount of high-quality liquid assets to independently withstand the stressed market environment,” Federal Reserve Chairwoman Janet Yellen said.

Under the rule, banking institutions must hold high-quality liquid assets that could easily be converted to enough cash to weather increased “outflows” that can occur during stress periods lasting up to 30 days. The agencies identified central bank reserves, as well as government and corporate debt as assets that would fit the bill.

The standards apply to banks with $250 billion or more in total assets and certain institutions with substantial “foreign exposure.” Banks with $50 billion or more in assets are required to adhere to a less stringent set of new standards.

Applicable banks must come into compliance by Jan. 1, 2017.  

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