Sunday 28 December 2014

US banks are told to be prepared for 30-day crisis

Jesse Hamilton and Jim Brunsden

Published 25/10/2013 | 01:00

Fed chairman Ben Bernanke
Fed chairman Ben Bernanke

The biggest US banks would be required to hold enough easily sold assets to survive a 30-day credit drought under proposed new Federal Reserve liquidity rules.

The Federal Reserve liquidity coverage ratio proposal, approved unanimously at a meeting in Washington, goes further than the Basel III measure adopted in January and calls for earlier implementation than the EU.

The US plan, most stringent for the biggest banks, is looking at implementation by 2017 – two years ahead of Basel's deadline. "The proposed rule would, for the first time in the United States, put in place a quantitative liquidity requirement that would foster a more resilient and safer financial system," Fed chairman Ben Bernanke said before the vote.

The proposal would require setting aside about $2 trillion (€1.44tn), and the Fed estimates that US banks are currently $200bn (€144bn) short.

The Basel Committee on Banking Supervision in January agreed on a liquidity coverage ratio, meant to ensure banks can survive a 30-day credit squeeze without the kind of government aid that was required after the 2008 crisis.

That standard would allow lenders to go beyond cash and low-risk sovereign debt to an expanded range of assets including some equities and corporate debt, according to the agreement.

The US version would include a limited amount of government-sponsored enterprise debt while excluding private-label mortgage-backed securities.

Irish Independent

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