FedFin Assessment: Implications Of An IRR Capital Charge, New Liquidity Rules

As we noted yesterday, the head of the Basel Committee has targeted two capital and liquidity  compromises included in the current Basel III construct not addressed in the end-game rules to which the U.S. plans shortly to turn.  Actions whether by Basel or, even without it, the U.S. to return to Basel’s initial proposals have significant strategic consequence.  Thus, this report assesses these options and how the U.S. might act on them.  We conclude that the U.S. will quickly impose a de facto interest-rate risk (IRR) capital charge and tighten LCR assumptions related to uninsured deposits.