Regulators require more high-quality assets at banks to help avoid another market crisis





The 15 largest banks â€” those with more than $250 billion in assets â€” will have to hold enough cash, government bonds and other high-quality assets to fund operations for 30 days during a time of market stress. Smaller banks â€” those with more than $50 billion but less than $250 billion in assets â€” will have to keep enough to cover 21 days. Banks with less than $50 billion in assets and nonbank financial firms deemed by regulators as posing a potential threat to the system will not be subject to the requirements.



Fed officials say the rules are stronger than new international standards for banks. Combined, the largest banks will have to hold an estimated $2.5 trillion in high-quality assets to meet the requirements. The banks already hold all but about $100 billion of that amount, according to the Fed. Banks have sharply improved their cash-ready holdings in the past few years, and about 70 per cent now meet the full requirement, the Fed estimates.








Requiring collateral such as cash or securities in derivatives trades can depend on the bank's assessment of whether a company is a credit risk or unable to meet its obligation if the bet soured. A bank's trading partner in a derivatives transaction can be a commercial user of derivatives such as an airline or oil company, another Wall Street bank or a foreign government, and they represent varying degrees of risk.


Derivatives are complex investments whose value is based on a commodity or security, such as oil, interest rates or currencies. They are often used to protect businesses that produce or use the commodities against price fluctuations â€” but they also are used by financial firms to make speculative bets. Traded in a secretive $600-trillion global market, derivatives helped ignite the 2008 meltdown. The 2010 financial overhaul law brought the market under regulation for the first time.

The collateral rules apply to derivatives traded outside of clearinghouses, which were established by the overhaul law. Clearinghouses settle derivatives trades and their member firms must back them, so collateral is always required. Fed officials say they expect about 60 per cent of derivatives trades to occur in clearinghouses.

More Business News

Recent Trending
Castanet Proud Member of RTNDA Canada
Press Room