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U.S. proposes rule to shrink big banks' liquidity risk 

April 27, 2016

Lisa Lambert, Reuters

The top U.S. banking regulator on Tuesday released its proposal for establishing a Net Stable Funding Ratio, a final piece in the puzzle to strengthen banks' liquidity in case they come under financial stress.

The ratio is intended to ensure liquidity over a one-year horizon, compared with the liquidity coverage ratio of 2014 requiring banks to hold high-quality assets that could be readily converted into cash within 30 days. The ratio will "discourage reliance on more volatile short-term funding," the FDIC said in its proposal.

"During the financial crisis, a number of large banking organizations failed, or experienced serious difficulties, in part because of severe liquidity problems," said FDIC Chairman Martin Gruenberg. "The proposed rule would reduce the vulnerability of large banking organizations to the kind of collapse in liquidity that occurred to the crisis."

The proposal is in line with the international Basel standard set in 2015, according to the FDIC. It differs primarily by providing a narrower definition of a "high-quality liquid asset" and a way to address "trapped liquidity."

The NSFR would apply to bank holding companies and depository institutions with $250 billion or more in total consolidated assets or $10 billion or more in foreign exposure. Read more

 
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