WASHINGTON — Federal regulators are set to release Tuesday a long-awaited proposal to require the biggest banks to retain more liquidity to withstand a prolonged crisis.
The Federal Deposit Insurance Corp. added the proposal to its April 26 meeting, during which the agency was set to approve a separate plan to target executive compensation at the largest institutions.
The liquidity proposal is federal regulators' second one designed to ensure large banks retain liquidity during a downturn. The first rule, which was finalized in 2014, requires the biggest banks to maintain a liquidity coverage ratio to ensure they have enough high-quality liquid assets to continue operations for at least 30 days during a financial crisis.
The second liquidity plan to be released on Tuesday is more long-term. Dubbed the "net stable funding ratio," it is meant to guarantee liquidity over a one-year period and discourage over-reliance on short-term funding strategies that regulators have criticized.
Both liquidity rules are required under the international Basel III accords — and both are new, relatively untested tools. Bankers have already raised concerns that the liquidity coverage ratio is causing liquidity problems in the market because it forces all banks to gravitate toward the same assets, but regulators have insisted there is no proof of such an issue. The net stable funding ratio proposal is likely to add more fuel to the fire of that debate.