ABA Urges Fed to Expand High-Quality Liquidity Definition

ABA today welcomed the Federal Reserve’s proposed rule counting certain municipal bonds as high-quality liquid assets under the Liquidity Coverage Ratio — a measure ABA has advocated for since the regulatory agencies first published the liquidity standards — but described it as a “modest step” that leaves the band of eligible HQLA too narrow.

“The credibility of the LCR can be maintained — and in fact strengthened — by ensuring that the definition of HQLA incorporates the significant variety of liquidity sources that banks have safely relied upon in the past,” ABA said. The association cautioned that an unnecessarily narrow band of eligible HQLA may encourage herd behavior and liquidity hoarding during a crisis and urged the Fed to expand the definition. For more information, contact ABA’s Alison Touhey.