Wednesday, September 3, 2014

Fed Institutes New Rule In Preparation For Bank Runs

Without fanfare, the Federal Reserve voted to require banks to hold at least $100 billion dollars in liquid assets; allegedly to ensure that adequate cash reserves remain on hand to pay depositors in the event of a bank run.

(Washington Examiner) The Federal Reserve and the Office of the Comptroller of the Currency voted Wednesday to implement new rules that will mandate that banks hold $100 billion more in liquid assets, a step intended to prevent banks from being caught unable to pay creditors or depositors during a panic.

The Federal Deposit Insurance Corporation is expected to also finalize the regulations Wednesday afternoon. An official at the Federal Reserve said the new measure would ensure that banks hold enough assets that "can be converted quickly and easily into cash in the amount needed" to avoid having its assets tied up when a creditor demands payment.

Federal Reserve Chairwoman Janet Yellen called the vote "another important step to enhance the safety and soundness" of big banks in the U.S.

The rule, which was proposed in November as part of the U.S. implementation of the Basel III international agreements on regulations, would require that banks hold enough safe, liquid assets at any given time to be assured of having cash to survive 30 days of a panic. Regulators described the measure as an attempt to avoid the kinds of panics that resulted in taxpayer-funded bailouts of Wall Street in 2008.

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Posted By: Chris Carmouche