Fed proposes requirement for banks to keep enough liquidity to tide them over a crisis

The US Federal Reserve proposed on Thursday that big banks keep enough cash, government bonds and other high-quality assets on hand to survive during a severe downturn on par with the 2008 financial crisis.

The proposal subjects US banks for the first time to so-called “liquidity” requirements. Liquidity is the ability to access cash quickly.

The largest banks – those with more than US$250 billion in assets – would be required to hold enough cash and securities to fund their operations for 30 days during a time of market stress.

Smaller banks – those with more than US$50 billion and less than US$250 billion – would have to keep enough to cover 21 days.

Fed officials said the rules are stronger than new international standards for banks. Combined, the largest banks would have to hold an estimated US$2 trillion in high-quality assets to meet the requirement. The banks already hold roughly 90 per cent of that amount, according to the Fed.

The public has 90 days to comment on the proposal, which was approved unanimously by the Fed’s six-member board of governors. After that the rules would be phased in, beginning in January 2015.