Rule would force big banks to hold more cash
April 27, 2016 by Paul Davidson
Regulators on Thursday proposed a new rule that would require the nation’s largest banks to hold enough cash for a year to avoid the kinds of liquidity shortages that occurred during the 2008 financial crisis.
Under the proposed measure, banks with at least $250 billion in assets would have to maintain certain levels of “stable funding” that includes capital, long-term debt and other sources to account for the risks posed by riskier instruments such as derivatives. Banks with at least $50 billion in assets would have to meet a less onerous requirement.
The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency endorsed the rule Tuesday, opening a public comment period that ends August 5. The Federal Reserve is expected to tentatively pass it within weeks.
“This way, covered institutions would be less at risk of facing funding disruptions or liquidity runs that could threaten their viability,” FDIC Chairman Martin Gruenbergsaid in a statement. “The proposed rule would thereby enhance the resilience of the banking system as a whole.”
Most banks already meet the threshold, according to the 225-page proposal. In aggregate, the banks subject to the rule would face a shortfall of just $39 billion, or 0.5%, of the total requirement.
Gruenberg said the regulation would complement an existing rule that requires large banks to hold enough cash to cover cash-flow stresses for 30 days.
