Banks Face More Oversight of Ability to Weather Credit Crunch
By Jesse Hamilton

U.S. regulators, closing in on their mandate to force financial firms to prove they can weather another credit crisis, are set today to finish two key rules governing the banks’ balance sheets. The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. are ready to issue a mandate that banks set aside enough easy-to-sell assets to survive a 30-day liquidity drought and wrap up rules on how much loss-absorbing capital must be held against total assets. Ahead of a hearing next week before U.S. senators, who will ask about their progress on rules related to the Dodd-Frank Act, regulators are piling up a stack of fresh work. The latest actions include another rule today dealing with swap margins and one yesterday scrutinizing how banks are managing risk. Today’s capital and liquidity rules are based on accords reached by the 27-nation Basel Committee on Banking Supervision. They’re meant to keep banks running in a crisis, by limiting how indebted they can get and by demanding they hold plenty of stable assets such as Treasuries, corporate debt and public-company stocks. “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., adding that the regulators’ demands are creating “a scarcity of eligible assets.”