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The proposal would for the first time create a standardized minimum liquidity requirement for large and internationally active banking organizations and systemically important, non-bank financial companies designated by the
"Liquidity is essential to a bank's viability and central to the smooth functioning of the financial system," Chairman
The LCR would apply to all internationally active banking organizations–generally, those with
The proposal defines various categories of high quality, liquid assets (HQLA) and also specifies how a firm's projected net cash outflows over the stress period would be calculated using common, standardized assumptions about the outflows and inflows associated with specific liabilities, assets, and off-balance-sheet obligations.
"Since financial crises usually begin with a liquidity squeeze that further weakens the capital position of vulnerable firms, it is essential that we adopt liquidity regulations to complement the stronger capital requirements, stress testing, and other enhancements to the regulatory system we have been putting in place over the past several years," Gov.
The liquidity proposal is based on a standard agreed to by the
The proposed rule is generally consistent with the Basel Committee's LCR standard, but is more stringent in several areas, including the range of assets that will qualify as HQLA and the assumed rate of outflows of certain kinds of funding. In addition, the proposed transition period is shorter than that included in the Basel agreement. The accelerated transition period reflects a desire to maintain the improved liquidity positions that U.S. institutions have established since the financial crisis, in part as a result of supervisory oversight by the Federal Reserve and other U.S. bank regulators. Under the proposal, U.S. firms would begin the LCR transition period on
"This rule would help ensure that the liquidity positions of our banking firms do not weaken as memories of the crisis fade," Tarullo said.
The Federal Reserve developed the proposed rule with the
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