Federal regulators on Tuesday announced a proposal for a new rule meant to ensure that big banks wouldn’t face a panic, a requirement that banks hold enough safe and liquid assets to meet a year’s worth of required payments.
The rule, the net stable funding rule, is the latest of a number of post-financial crisis rules forcing banks to maintain higher capital levels and greater liquidity.
The proposal is “one piece of a broader effort to increase the resiliency of the banking system,” Comptroller of the Currency Thomas Curry said in prepared remarks for his agency’s meeting to discuss the rule Tuesday morning.
Regulators already mandated in 2014 that banks have enough assets that are liquid, meaning they can be sold for cash even in a turbulent market and not face fire sales, to weather 30 days of panic.
The net stable funding rule would extend that principle to the longer term, requiring banks to have stable funding to last at least year.
Under the rule, certain forms of funding would be considered more stable and others less stable. Capital, or ownership shares, would be considered fully stable, with retail deposits slightly less stable. On the other end, short-term debt would be classified as unstable, and count against the bank’s stable funding ratio.
The rule would apply to banks with more than $250 billion in assets, essentially the eight large banks identified as globally systemically important banks, or, as critics call them, too big to fail. It also would affect smaller banks that belong to bigger conglomerates or non-banks that the regulators have identified as systemically important.
The rule, which will be open for comment in July, would be implemented by the three bank regulatory agencies: The Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation.
