Stocks Stumble On $200bn Liquidity Shortfall From Fed's Tougher-Than-Expected Bank Rules

In a tougher-than-expected proposal, the Fed has decided that "internationally active banks" raise their minimum liquidity standards (more than some expected, it would seem by the reaction in stocks).

  • *FED PROPOSAL CALLS FOR BANKS TO HOLD 30 DAYS OF READY ASSETS
  • *FED: US BANKS ROUGHLY $200 BILLION SHORT OF PROPOSED LIQUIDITY REQUIREMENT.
  • *BERNANKE SAYS LIQUIDITY RULE WILL MAKE FINANCIAL SYSTEM `SAFER'

The Fed seeks comments on this proposal over the next 90 days - which we presume will involve much hand-wringing and jawboning until the shortfall disappears magically with transformed collateral... but for now, it is yet another 'tightening' stance in global policy that will impact 'trading' banks considerably more than 'deposit-taking' banks.

 

 

Via Bloomberg,

Banks would have to hold enough easy-to-sell assets to survive a 30-day credit drought under a rule to be proposed today by the Federal Reserve that may have the greatest effect on banks with big trading operations such as JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS)

 

The demand for 30 days of liquidity is intended to satisfy global Basel III accords for strengthening the financial system. Increasing the banks’ liquid assets is meant to make them less vulnerable in a crisis like the one that struck in 2008.

 

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“It’s always been viewed as something that had more relevance for the trading banks,” said former Fed lawyer William Sweet, adding that it will hit them harder because of their more urgent need for short-term funding. Banks’ broker-dealer units must raise money in the market because they can’t rely on deposits to finance their activities.

 

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“The implementation by the U.S. of the Basel rules have had more rigorous requirements than those implemented elsewhere,"

 

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The liquidity coverage ratio was at the center of an international tussle last year, as some central bankers and regulators warned that a draft version of the standard risked causing a credit crunch, while others urged against a wholesale watering down of the measure.