MNI: Fed Considering Discount Window Readiness Rule - Barr
Improving the functionality of the discount window would help address lessons about liquidity learned last spring, Fed regulator says.
Federal Reserve Governor Michael Barr said Monday the Fed is working actively to improve the functioning of the discount window after last year's regional bank crisis, including considering requiring certain banks maintain a minimum amount of reserves and collateral at the discount window.
"We are exploring a requirement that banks over a certain size maintain a minimum amount of readily available liquidity with a pool of reserves and pre-positioned collateral at the discount window, based on a fraction of their uninsured deposits," he said. "Incorporating the discount window into a readiness requirement would also reemphasize that supervisors and examiners view use of the discount window as appropriate and unexceptional under both normal and stressed market conditions."
The Fed's chief bank regulator also repeated he expects "broad and material changes" to regulators' Basel endgame proposal that could increase capital charges significantly without giving any new details. Regulators have faced pushback from both big banks and Democrats on the proposal.
"Basel endgame will finish the work of responding to the global financial crisis, but the financial system is dynamic and continues to evolve. Regulators must ensure that the rules adequately keep pace with these developments," Barr said in remarks prepared for an Atlanta Fed conference.
Commenting on monetary policy, Barr said he was comfortable holding interest rates where they are to "allow our restrictive policy some further time to continue to do its work."