Fed’s Brainard Updates Progress on NSFR, Volcker Rewrite

The Federal Reserve is “close” to finalizing the Net Stable Funding Ratio, a long-term liquidity measurement included in the Basel III liquidity standards, Federal Reserve Governor Lael Brainard said during a speech in Washington today. The American Bankers Association has urged the Fed not to finalize the NSFR, noting that the standard would impose needless costs considering that the NSFR’s goals have been achieved by the other liquidity requirements in place.

Brainard also said she supports the banking agencies’ ongoing efforts to streamline the Volcker Rule, noting that “the interagency regulation implementing the Volcker Rule is not the most effective way of achieving its very laudable and important goal.” Echoing what other regulatory officials have said, she said the agencies are focusing on ways to “tailor the Volcker compliance regime to focus on firms with large trading operations and reduce the compliance burden for small banking entities with limited trading operations.”

She cautioned against making any “material changes” to the core capital and liquidity framework adopted in the post-crisis period for the largest financial institutions, noting that we have not passed through a full economic cycle. “Prudence would argue for waiting until we have tested how the new framework performs through a full cycle before we make judgments about its performance,” she said.