(Washington) The American Federal Reserve (Fed) wants to strengthen the capacities of the main American banks to resist in the face of future crises, assured Monday the vice-president responsible for regulation, Michael Barr, in an intervention in Washington where he revealed a series of proposals.
Among the most important, which will concern banks with 100 billion dollars in assets, is the desire to strengthen the capitalization of institutions, by establishing a liquidity floor of 2% in order to cope with future shocks.
“I will recommend that the enhanced free liquidity rules apply to banks with $100 billion in assets or more. […] This implies that more institutions will be affected than under the current framework, which only applies to banks with 700 billion dollars in assets, “detailed Mr. Barr.
“Our experience shows that even a bank of this size can cause tensions which can spread to other establishments and call into question financial stability”, justified the vice-president of the Fed, recalling that the absence of liquidity is one of the causes that led to the fall of Silicon Valley Bank (SVB) at the start of the year.
A regional bank specializing in deposits for companies in the technology sector, SVB had been put in difficulty last March by the rise in Fed rates, which had led to a devaluation of part of its assets when it had to do faced with a massive outflow of capital.
Its fall led to several weeks of tensions in the American financial sector and the fall of other regional establishments, including Signature and First Republic.
Both the Fed and the Treasury Department have since sought to reassure the markets, both emphasizing that the US financial sector was “strong and resilient”.
But the sector’s difficulties have led regulators to review their supervision and control rules in order to avoid a future crisis.
The other main measure proposed is the increase in the long-term debt of banking establishments, which should make it possible “to improve a bank’s capacity to face up to difficulties, since long-term debt can be converted into own and thus be used to absorb any losses, “said Michael Barr.
Finally, the vice-president of the Fed proposes to review the conditions of the stress tests, which make it possible to regularly check the sector’s ability to withstand different crisis scenarios.