Regulators Set to Unveil New Liquidity Rules

By Donna Borak

Regulators are nearing completion of a landmark proposal that would institute a liquidity requirement for financial institutions designed to help buffer against a prolonged market crisis. The three banking agencies have spent roughly 10 months drafting a U.S. plan to adopt the Basel III requirement, which global regulators amended in January to expand the types of “highly liquid” assets and allow banks to build up their buffer over time instead of immediately. The proposal, which had been expected as early as this summer, will now be up for discussion and released at an open Federal Reserve Board meeting on Oct. 24, according to a notice posted on the agency’s Web site on Thursday. “A certain amount of flexibility was given to national regimes in the January announcement,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics. “But the agency paper — Fannie, Freddie, Home Loan banks — is so critical in U.S. funding markets and non-existent elsewhere. The final Basel rule doesn’t well address it and I expect the U.S. rules will.”