WASHINGTON, D.C.—Dennis Kelleher, Co-founder, President and Chief Executive Officer of Better Markets, released the following statement in advance of the effectiveness of the net stable funding ratio (NSFR) liquidity rule tomorrow:
“A lack of liquidity, meaning readily available cash to meet customer, creditor, counterparty and other demands, always spikes in a crisis and was one of the key accelerants of the 2008 financial crash and contagion. That’s why the Dodd-Frank financial reform law mandated that the banking regulators require the country’s largest, most dangerous banks have enough liquidity to fund themselves in a crisis.”
“That’s what the net stable funding ratio (NSFR) and its companion rule, the Liquidity Coverage Ratio (LCR), are supposed to do: require the biggest, most dangerous Wall Street banks to have enough very liquid, high quality assets to fund themselves for 30 days (the LCR) and enough stable funding for 12 months (NSFR) without needing taxpayer bailouts. That is in fact what the 2016 proposed NSFR rule did, a proposal we strongly supported. However, Trump’s Wall Street-friendly banking deregulators gutted the proposed rule when it was finalized in October 2020, just as Wall Street’s biggest banks wanted.”
“As a result, the final rule is full of exclusions, limitations, definition changes, and needless complexity, greatly weakening the rule and impairing its effectiveness. For example, the final NSFR rule indefensibly excludes repurchase (repo) agreements and reverse repos, which are the very definition of unstable short-term funding, have been a consistent source of instability, and have required repeated bailouts. Confirming the need for a robust LCR and the NSFR, the 2020 pandemic again revealed the fragility of short-term funding sources, which was a major factor leading to the unprecedented Fed support of $4 trillion and counting.”
“Ensuring banks have sufficient liquidity is essential to prevent crashes from happening in the first place or, if they do happen, from getting out of control and necessitating taxpayer bailouts of too-big-to-fail financial firms. The banking regulators at the Federal Reserve, the FDIC and the OCC should reconsider, revise and strengthen the 2020 NSFR along the lines of the 2016 proposed rule.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.