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August 17, 2016

Ameircan Banker: Long-Term Liquidity Plan Is Costly and Redundant, Banks Argue

WASHINGTON — A new proposed long-term liquidity requirement confers little benefit while adding compliance costs and contradicting existing regulations, according to banks and financial industry trade groups.

In a joint letter to the regulators, several trade groups representing large banks argued that the Liquidity Coverage Ratio, a liquidity measure finalized in 2014 that requires banks to ensure they could survive a funding crisis lasting 30 days, already accomplishes what the agencies are seeking to do.

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Wall Street reform advocates, meanwhile, generally endorsed the proposal. Dennis Kelleher, president of Better Markets, argued that banks should be required to report information about their liquidity more frequently than quarterly — as the proposal suggests — but was otherwise supportive of the plan.

In his comment letter Kelleher specifically rebutted industry arguments that the NSFR was redundant. The LCR addresses the problem of converting assets to cash in stress scenarios, he said, which was one major problem that arose in the 2008 financial crisis. But the NSFR addresses liquidity transformation — that is, how banks’ inflows relate to their outflows, even in a stress environment.

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To read the full American Banker article by John Heltman click here.

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