Regulators’ New Bank Liquidity Rule May Negatively Impact Financing for Businesses, Consumers
LCR Rule Fails to Uphold Consistent International LCR Standards
Washington, DC— The final liquid coverage ratio (LCR) rule finalized by the Federal Reserve and other regulators today is not consistent with the Basel III LCR agreement and could negatively impact market liquidity and significantly raise borrowing costs for local governments, businesses and consumers, the Financial Services Roundtable said today in a statement.
“This new U.S. rule is a clear divergence from the Basel Committee’s LCR standards, which is concerning,” said FSR Vice President & Senior Counsel for Regulatory and Legal Affairs Richard Foster. “We need a consistent international standard to improve the accuracy and suitability of the LCR as a measure of liquidity risk. Instead of promising revisions in the future, we believe regulators should take necessary actions now to make needed changes to rule.”
The rule adopted today provides strong incentives for banks to reduce their investments in municipal securities and mortgage-backed securities, which could cause interest rates to rise and could hinder the ability of cities and states to raise revenue for new development projects. The rule also sets standards that decrease the ability of U.S. banks to offer loans when compared to their foreign counterparts and sets an aggressive timeframe for the implementation of the new LCR rules, which will likely impose high costs on banks seeking to obtain assets that are deemed “highly liquid” by the new rule.
FSR continues to be concerned that the effects of divergence could be exacerbated due to the aggregate impact of other new regulations on capital and leverage, as well as the implementation of a wide range of Dodd Frank reforms.
The Financial Services Roundtable represents the largest integrated financial services companies providing banking, insurance, payment and investment products and services to the American consumer. Member companies participate through the Chief Executive Officer and other senior executives nominated by the CEO. FSR member companies provide fuel for America’s economic engine, accounting for $92.7 trillion in managed assets, $1.2 trillion in revenue, and 2.3 million jobs. Learn more at FSRoundtable.org.