The three Federal bank regulatory agencies have reached agreement on the terms of a proposed regulation that, for the first time, would impose quantitative requirements on major US banks’ liquidity management practices. The proposal generally follows the international standard issued by the Basel Committee on Banking Supervision in early 2013 but with some twists, including an accelerated phase-in schedule. The comment period extends to the end of January 2014.

The proposal (“Liquidity Proposal”) was approved yesterday by the Board of Governors of the Federal Reserve System (“Federal Reserve”) in an open meeting, with adoption by the Office of the Comptroller of the Currency (“OCC”) and Federal Deposit Insurance Corporation (“FDIC”) expected shortly. It constitutes yet another effort by US supervisors to impose prudential requirements on systemically important financial institutions in order to prevent another financial crisis and subsequent use of taxpayer funds to bail the institutions out. Poor liquidity management is considered by the supervisors to be a major cause of the financial troubles that began in 2008.

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