Fed Diverges from Global Regulators on Liquidity Buffer

By Donna Borak

Global regulators gave banks some breathing room over the weekend by saying firms could fall below minimum liquidity requirements during period of stress, but that may not be the case for U.S. institutions. After a meeting of the Group of Governors and Heads of Supervision on Sunday, regulators agreed to clarify pending liquidity rules to state explicitly that banks would be required to meet minimum liquidity requirements during normal times, but would be allowed to fall below them in a crisis situation. But the statement appears to be at odds with the Federal Reserve Board’s own liquidity proposal, which calls for the creation of a liquidity buffer over atop the minimum requirements. The buffer is designed to ensure banks do not fall below the minimum liquidity ratio. “The Basel rules as the GHOS announced them yesterday say that within the rules as specified there is a buffer so that under stress you can fall below the 100% ratios and not be considered illiquid,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics Inc. “In the Fed’s notice of proposed rulemaking, the buffer rides atop the basic liquidity rules so you have to meet all the liquidity and still more to meet the buffer requirements.”