The FRB has finalized new liquidity requirements for U.S. BHCs with assets over $50 billion, setting qualitative requirements in an area also soon to be subject to major quantitative requirements through the inter-agency proposal to set a liquidity-coverage ratio (LCR) and a new global net stable funding ratio (NSFR). The new standards go well beyond the U.S. and global ones in many respects, especially with regard to the need for stress testing, contingency funding and buffers. As a result, they will require significant changes in liquidity-risk management at covered BHCs and foreign banks, as well as complicate compliance with looming leverage requirements. Overall market changes and new drivers for “shadow banks” could result if these rules combine with others governing banks to create a shortage of high-quality assets available for regulatory purposes.

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