Washington US [DC], March 4: The US Treasury Department and bank regulators are eyeing a comprehensive review of bank liquidity rules, arguing existing rules are ineffective and impede lending.
Senior Treasury and Federal Reserve officials discussed changes to the Tuesday, saying revised requirements could ensure banks utilize tools meant to keep them afloat during times of stress, while minimizing the amount of funds they must set aside. The remarks indicate that the Trump administration is likely to tackle liquidity rules soon, the latest step in a comprehensive overhaul of existing bank requirements.
Jonathan McKernan, the Treasury's under secretary for domestic finance, said in prepared remarks at a regulatory roundtable that the current framework "has excessively and unnecessarily limited banks' ability to do what they are supposed to do lend."
Specifically, McKernan floated giving banks credit on their liquidity requirements when they preposition collateral at the Fed's discount window, which is a tool long meant to serve as a source of quick liquidity for banks but one the industry has avoided due to fears of signaling weakness.
Acknowledging collateral from banks at the discount window as potential borrowing capacity could reduce that stigma, and capping that recognition could ensure banks still take sufficient steps on their own balance sheet to withstand potential runs, he added. McKernan went on to suggest the cap could be adjusted during times of stress.
Source: Qatar Tribune
