WASHINGTON — Federal regulators are set to require big banks to keep enough high-quality assets on hand to survive during a severe downturn, the latest move under the congressional mandate to lessen the likelihood of another financial meltdown.
The largest banks — those with more than $250 billion in assets — 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 — those with more than $50 billion and less than $250 billion in assets — 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.
The rules will begin to take effect in January and the requirements will be phased in over two years.
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.
The requirements were called for by
Hundreds of U.S. banks received federal bailouts during the crisis. Among them were the largest financial firms, including
Fed officials have said that related requirements also are being considered, such as a mandate for large banks to test their liquidity under stress conditions.
Separately, the regulators are proposing to give banks flexibility in collecting collateral from companies that use derivatives to hedge against price risks. 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. The aim is to cut down on the kind of risky trades that contributed to the financial crisis.
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, 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.