WASHINGTON, Sept. 3 (Xinhua) -- U.S. Federal Reserve on Wednesday finalized a rule to require large financial institutions to hold more liquidity positions to hedge against possible risks.
The rule will for the first time create a standardized minimum liquidity requirement for large and internationally active U.S. banking organizations.
Under the new rule, the large banks will be required to hold an amount of high quality liquid assets, such as central bank reserves and government and corporate debt, which is no less than 100 percent of their net cash outflows for 30 days during period of economic stress.
The stringent minimum liquidity coverage ratio (LCR), a ratio of an institution's liquid assets to its projected net cash outflow, will apply to all banking institutions with more than 250 billion U.S. dollars in total consolidated assets or 10 billion dollars or more in total on-balance sheet foreign exposure.
The rule will also apply a less stringent LCR to bank holding companies and loan holding companies with more than 50 billion dollars in assets.
Consistent with the Basel III Revised Liquidity Framework, the final rule is effective as of Jan. 1, 2015, subject to two-year transition period. Under the rule, covered companies will be required to maintain a minimum LCR of 80 percent from Jan. 1, 2015. From Jan. 1, 2016 to Dec. 31, 2016, the minimum LCR will be 90 percent. Beginning a year later and thereafter, all covered companies will be required to maintain an LCR of 100 percent.
Fed Chair Janet Yellen said in a separate statement that the rule was one of the Fed's important steps "to enhance the safety and soundness of our large financial institutions and the stability of the U.S. financial system."
"As the financial crisis demonstrated, most of our largest and most systematically important financial institutions used excessive amounts of short-term wholesale funds and did not hold a sufficient amount of high quality liquid assets to independently withstand the stressed market environment," Yellen said.
Some analysts warned that the requirement may have an impact on banks' lending and investment activities, as they will have a smaller portion of their assets to make such activities.