U.S. bank regulators are reconsidering how much liquidity banks should be required to have on hand following a series of abrupt bank failures in 2023, the Federal Reserve's top regulatory official said Monday.
Michael Barr, the Fed's vice chair for supervision, said regulators are considering "targeted adjustments" to existing liquidity rules aimed at boosting bank resilience under stress. The changes under consideration are aimed at larger banks, and would be intended to ensure they can readily access funds to offset surprise losses or deposit flight, he said. Barr did not say when he expected regulators to propose such changes.
Among the changes under consideration are requiring larger banks to position a minimum level of collateral at the Fed's discount window, which is intended to serve as a lender of last resort, but one banks have resisted in the past due to concerns it could signal weakness to the financial market.
Barr also said larger banks could be directed to ensure they have sufficient liquidity to cover their uninsured deposits, after Silicon Valley Bank saw those funds, which made up the vast majority of their deposits, flee quickly in the days before its failure.
Another lesson from SVB's failure is regulators are considering different treatment for certain types of deposits that may be more prone to runs, such as those associated with venture capital and cryptocurrency businesses.
"As we saw during the stress of a year ago, these types of deposits can flee banks much more quickly than previously anticipated," he said in prepared remarks.
Lastly, regulators are also considering placing restrictions on how much larger banks can rely on "held-to-maturity" assets when calculating their liquidity under existing rules. Barr noted that those securities can prove difficult to sell during times of stress, potentially reducing their usefulness as a liquidity reserve.
