Bank Liquidity Rules Excluding Munis Set for Approval
By Jesse Hamilton

U.S. regulators set requirements for the amount of high-quality, liquid assets big banks must stockpile to survive a 30-day liquidity drought, taking a major step in efforts to prevent a repeat of the 2008 credit crisis. Rules approved yesterday by the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. leave banks about $100 billion short of the $2.5 trillion in easy-to-sell assets needed to meet the liquidity standard, according to the Fed. Municipal bonds are excluded from the category of assets that can be used to reach the target. The agencies also proposed a rule on collateral for swaps traded outside of clearinghouses and wrapped up rules on how much loss-absorbing capital must be held against total assets. “The very biggest U.S. banks are largely fine with regard to the ratio, although the new standards raise significant strategic challenges in the context of current market conditions and the new leverage rules,” said Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc. The regulators’ demands are creating “a scarcity of eligible assets,” she said.