In this report, we assess the housing-finance impact of another major regulatory change envisioned by FRB Vice Chairman Quarles: dramatic restructuring of the liquidity coverage ratio (LCR) so that only the very biggest banks are subject to its strictest provisions. How this relief is executed will determine how significant its strategic impact will ultimately prove, but even modest LCR reform opens up significant balance-sheet capacity at large regional banks. In concert with pending capital relief, this could greatly expand their ability to hold mortgages in portfolio, undertake private-label securitizations, and make greater use of the FHLBs.
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