During the financial crisis of 2008, the big banks fell dangerously short of cash, forcing them to take out enormous government loans to survive the tumult.
To help prevent another giant cash squeeze, federal regulators proposed a rule on Thursday that requires big banks to hold a set amount of assets that they can quickly turn into cash.
The hope is that, in times of turbulence, banks will have adequate funds to replace the cash that might be leaving them at a rapid clip. The new rule, known as the liquidity coverage ratio, is the first to systematically require banks to be in a position to cover a set amount of cash outflows. The rule is intended to complement new rules on capital that focus more on making banks resilient to losses on loans and securities.
“The proposed rule would, for the first time in the United States, put in place a quantitative liquidity requirement,” Ben S. Bernanke, chairman of the Federal Reserve, said in a statement. He added that it “would foster a more resilient and safer financial system in conjunction with other reforms.”
The liquidity rule works by asking large banks to estimate how much cash might flee in a 30-day period. They then have to have enough assets that they could quickly sell to cover that outflow.
The requirement, scheduled to come into full effect at the start of 2017, could dent the profits of banks, particularly Wall Street firms that rely on huge amounts of short-term market borrowing.
Still, regulators are concerned that the big institutions remain vulnerable to bank runs. And based on comments from prominent banking regulators on Thursday, banks should expect additional measures.
“In some sense, this is just a big but only first step down the road to achieving that durability of funding,” Daniel K. Tarullo, the Fed governor who oversees regulation, said at a board meeting on the rule.
The new liquidity ratio, which was conceived by an international grouping of bank regulators soon after the crisis, addresses a thorny dilemma at the heart of modern banking. For decades, central banks have been willing to provide emergency loans to their banking systems in times of stress, recognizing that bank runs can do terrible damage to the wider economy. But if banks come to expect that their central bank will always act as a lender of last resort, they might be encouraged to take excessive risks.
The support “creates potential moral hazard problems,” Jerome H. Powell, a Fed governor, said. The new rule “puts private liquidity in front of the taxpayer,” he said.
Darrell Duffie, a finance professor at Stanford, said: “The new rule is a measured response. It says, ‘We’re still here as a lender of last resort, but we want you to be more self-reliant.’ ”
Analysts expect that most large banks would already comply. The industry and other parties have 90 days to comment on the rule.
But the operations of large foreign banks are also subject to it, and some of them may have to do more. Some foreign banks have already criticized the Fed for making their United States operations follow more stringent capital rules than they might face at home. If foreign regulators are planning liquidity rules that are more lenient than the American one, foreign banks could step up their lobbying of the Fed.
In calculating how much liquidity is needed, safe and liquid assets like Treasuries would count at full value. But assets like stocks and corporate bonds would not because their prices might fall in a panicked market. The top quality assets have to account for at least 45 percent of the liquid asset pool.
Though some Wall Street firms may already comply with the liquidity rule, they may still find the adjustment difficult. Broker-dealers are still dependent on short-term funding, which is effectively targeted by the rule. Goldman Sachs, for instance, finances two-thirds of its assets with shorter-term market borrowings, based on an analysis of its latest securities filing.
In particular, the new rule might reduce the profitability of a practice that is common on Wall Street, according to Robert Maxant, a partner at Deloitte & Touche.
Brokers provide loans to clients to buy securities. To obtain the money that it lends to a client, a broker takes out its own loan, pledging securities as collateral. To ensure it profits on the arrangement, the broker needs to get more in interest on the client loan than it is paying on its own loan. To achieve this, the broker typically takes out a loan that is of a shorter term than the client’s loan.
But the new rule could penalize a bank that uses this approach because it assumes the broker’s short-term loan would evaporate in a crisis, and a shortfall would occur that would need to be covered. Amassing the liquid assets to cover the shortfall adds a cost to the brokerage business.
“The regulators have been very concerned about short-term funding,” Mr. Maxant said.