Quarles: Agencies to Revisit Guidance on Liquidity, Resolution Planning

In remarks at a Harvard Law School event today, Federal Reserve Vice Chairman for Supervision Randal Quarles signaled that the Fed and the FDIC will revisit the capital and liquidity requirements in place for the largest U.S. and foreign firms and will seek public input on current “living will” guidance.

“The best pre-positioning structure is . . . a practical balance designed to promote cooperation among humans, and any such balance is likely to be improvable with experience, reflection and debate,” Quarles said. “We are interested in views from the firms and the public on how the regimes can be improved.”

The Fed and FDIC in 2016 issued guidance — which was never subject to public comment — that resulted in two new liquidity requirements for G-SIB banks. Quarles noted that the agencies are currently “considering whether formalizing resolution capital and liquidity requirements through a rulemaking process would improve the predictability and transparency of our approach.”

Quarles also expressed support for revisiting “whether the internal [Total Loss-Absorbing Capacity] calibration for [intermediate holding companies] could be adjusted to reflect the practice of other regulators without adversely affecting resolvability and U.S. financial stability,” noting that the U.S.’ current calibration is toward the top of the scale put in place by the Financial Stability Board. He added that “willingness by the United States to reconsider its calibration may prompt other jurisdictions to do the same,” which could improve the chances for the successful resolution of both foreign G-SIBs operating in the U.S., and U.S. G-SIBs operating abroad.