The Federal Reserve today led the way for U.S. finalization of global liquidity standards, as well as for advancing contentious margin rules.  This FedFin report assesses the final LCR; a subsequent one will cover proposed new margin rules and FDIC action on the LCR, the margin proposal, and an inter-agency definition for the denominator of the leverage ratio.  In our view, the most important aspect of the final LCR is the clear articulation by the FRB today that it is a buffer below which banks may fall under either idiosyncratic or stress scenarios.  The FRB approach previously departed sharply from global rules, leading many large banks to fear they would have to hoard high-quality liquid assets (HQLAs) well above the LCR and that liquidity freezes would be exacerbated due to hoarding at the start of any stress scenario.  The Board approved the rule unanimously, but stressed the importance of prospective action, including implementing the Tarullo proposal for adding a liquidity surcharge into the pending capital hike for U.S. G-SIBs, quick implementation of the net stable funding ratio, and U.S. margin requirements for securities financing.  The FRB will separately act on an LCR for intermediate holding companies and, by rule or order, liquidity standards for designated non-bank SIFIs.  We expect these to be even more challenging for insurance companies than the long-pending capital standards for designated firms. 

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