The Federal Reserve Board proposed a rule to strengthen the liquidity positions of large financial institutions.
The proposal would for the first time create a standardized minimum liquidity requirement for large and internationally active banking organizations and systemically important, non-bank financial companies designated by FSOC. These institutions would be required to hold minimum amounts of high-quality, liquid assets such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash. Each institution would be required to hold liquidity in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a short-term stress period. The ratio of the firm's liquid assets to its projected net cash outflow is its "liquidity coverage ratio," or LCR.
The LCR would apply to all internationally active banking organizations--generally, those with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure--and to systemically important, non-bank financial institutions. The proposal also would apply a less stringent, modified LCR to bank holding companies and savings and loan holding companies that are not internationally active, but have more than $50 billion in total assets.
The liquidity proposal is based on a standard agreed to by the Basel Committee on Banking Supervision. The LCR would also establish an enhanced prudential liquidity standard consistent with section 165 of the Dodd-Frank Act.
The Federal Reserve developed the proposed rule with the FDIC and the OCC.
Comments will be received through January 31, 2014.