Banking regulators are considering “targeted adjustments” to its liquidity framework in response to the regional bank failures last year, Federal Reserve Vice Chairman for Supervision Michael Barr said today. Speaking at an economic conference hosted by the Federal Reserve Bank of Atlanta, Barr said that many financial institutions have taken steps to improve their liquidity resilience over the past year, “and the regulatory adjustments we are considering would ensure that all large banks maintain better liquidity risk management practices going forward.”
Barr listed three potential adjustments under consideration. First, regulators are exploring a requirement that banks over a certain size maintain a minimum amount of readily available liquidity with a pool of reserves and pre-positioned collateral at the discount window, based on a fraction of their uninsured deposits. Second, they are considering a restriction on the extent of reliance on held-to-maturity assets in large banks’ liquidity buffers, such as those held under the liquidity coverage ratio and the internal liquidity stress test requirements, to address the known challenges with their monetization in stress conditions. Third, they are reviewing the treatment of a handful of types of deposits in the current liquidity framework. “Observed deposit withdrawals from high-net-worth individuals and companies associated with venture capital or crypto-asset-related businesses suggest the need to re-calibrate deposit outflow assumptions in our rules for these types of depositors,” he said.
Barr also noted that last year, banking agencies invited public comment on a proposal to require large banks to issue and maintain a minimum amount of long-term debt. Regulators are currently reviewing those comments, he said.
