In this report, FedFin assesses a recent IMF paper on liquidity risk with significant policy impact. It comes in concert with work the Basel Committee hopes later this month to finalize on a redraft of the global liquidity standards (see FSM Report LIQUIDITY7) and builds on it to propose additional macroprudential liquidity requirements to address the concentration risk likely to result from the new Basel rules. FedFin does not expect the IMF approach – used to date in U.S. and other supervisory reviews – to be adopted in the near term as a global regulatory standard. It is, however, an influential analysis of rules that could be adopted in the U.S. or elsewhere to mandate a liquidity G-SIB surcharge akin to the costly capital one. This report assesses the surcharge-liquidity options and notes methodological issues FedFin believes would need to be resolved before policy-makers could proceed on what many of them will find a very attractive concept.
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