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U.S. banking regulators set to finalize new net stable funding ratio for large banks

Credit: REUTERS/Shannon Stapleton

A trio of U.S. banking regulators are set to move Tuesday on finalizing a pair of long-running rulewriting projects aimed at ensuring banks have enough liquidity while minimizing volatility.

By Pete Schroeder

WASHINGTON, Oct 20 (Reuters) - A trio of U.S. banking regulators are set to move Tuesday on finalizing a pair of long-running rulewriting projects aimed at ensuring banks have enough liquidity while minimizing volatility.

One rule will establish the so-called Net Stable Funding Ratio (NSFR), a long-term liquidity requirement, for 20 large banks. The second rule ups standards on "total loss-absorbing capacity" (TLAC) debt, which is debt banks must issue to ensure they have quick access to equity in times of stress.

The new NSFR rule brings to a close a rulewriting project that dates back to 2016, and is the final project from U.S. regulators to bring their rules in line with the 2016 international Basel III standards.

The rule requires the banks to set aside enough stable funds to cover their needs for a year, and the amount is based on a bank's assets, outstanding commitments, and derivatives exposure. Regulators said most banks are already meeting the new standard, but some large global banks may need to set aside a total of $31 billion to come in compliance.

However, the final rule does exempt Treasury debt and repurchase transactions based on Treasury debt from needing additional set-aside funds. Banks had warned that the proposal, which included a small offset for Treasuries, would have exacerbated spring turmoil in the Treasury market by discouraging banks from engaging in such trades.

The second new rule discourages large banks from loading up on debt from other large banks. Such TLAC debt must be held by banks as a way to quickly gain access to cash in times of stress. The new rule is aimed at ensuring large banks do not purchase large amounts of each others' debt, creating a situation where broad-based market stress could create issues across several firms.

The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and Federal Reserve are all expected to sign off on those two rules on Tuesday.

The three regulators also proposed a new rule, which is aimed at clarifying that informal regulatory guidance cannot be used to punish banks. Industry groups, such as the Bank Policy Institute, had long complained that such guidance had proven binding, and any such requirements must go through a formal-rulemaking process.

(Reporting by Pete Schroeder, Editing by Franklin Paul and Andrea Ricci)

((Pete.Schroeder@thomsonreuters.com; 202-310-5485;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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