Fed to Press Banks to Reduce Liquidity Risk

Bernanke says regulators will encourage banks to rely less on wholesale funding.

Federal Reserve Chairman Ben S. Bernanke said the Fed plans to avert strains in the banking system by pushing financial companies to better manage liquidity risk and reduce reliance on wholesale funding.

Regulators “will continue to press banks to reduce further their dependence on wholesale funding, which proved highly unreliable during the crisis,” Bernanke said in a speech yesterday in Stone Mountain, Georgia. “Banks of all sizes need to further strengthen their ability to identify, quantify and manage their liquidity risks.”

Regulatory Capital

A measure of regulatory capital, Tier 1 common equity, more than doubled from the end of 2008 to the end of 2012 for an increase of nearly $400 billion, Bernanke said.

More Capital

New measures under consideration range from legislation to limit the size of big banks or require make them to raise more capital. Proposals also include regulation discouraging mergers or ensuring financial firms hold specified levels of long-term debt to convert into equity in the event of failure.

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