The Federal Reserve Board, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency released a proposal on Thursday that would institute tougher liquidity requirements on U.S. financial institutions.

Regulators designed the liquidity rule to ensure banks hold enough liquidity to withstand a prolonged market crisis. In January, the rule was amended to expand the types of highly liquid assets. 

"Liquidity is essential to a bank's viability and central to the smooth functioning of the financial system," said Fed Chairman Ben Bernanke at an open board meeting.

"Fed officials hailed the proposal as designed to mitigate those kinds of 'destabilizing dynamics' by ensuring that major U.S. banks have a pool of high-quality liquid assets to address possible short-term cash outflows," writes American Banker's Donna Borak.

For the full piece see "How Regulators Toughened New Liquidity Proposal" (may require subscription).