Bank regulators float liquid assets rules

Federal bank regulators want large banks to increase the amount of money they hold in reserve for emergency situations.

The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency unveiled draft rules requiring major banks and savings associations to keep large amounts of liquid assets on hand to sell off during a credit crunch.  

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The regulators’ requirements are based on standards developed by the international Basel Committee, but are more stringent in some regards.

“We learned during the financial crisis just how important liquidity is to the stability of the system as a whole, as well as for individual banks,” Comptroller of the Currency Thomas Curry said in a statement on Wednesday.

“The proposed liquidity rule will help ensure that a bank’s cash, and not taxpayer money, is the first line of defense if it faces a short-term funding stress,” he added.

FDIC Chairman Martin Gruenberg said that the proposal is an “important step in helping to bolster the resilience of large internationally active banking organizations during periods of financial stress.”

Last week, the Federal Reserve Board approved similar standards for the amount of liquid assets banks need to have on hand.

The 248-page draft rules will not apply to community banks or other small financial institutions.

The proposal calls for American institutions to begin to beef up their liquid assets in 2015 and be compliant with the new standards by the end of 2016.

That’s two years faster than the international Basel agreement. The bank regulators say that the quicker transition time reflects a desire to maintain the strong reserves that American banks have held since the financial crisis.