By Douglas Gillison and Pete Schroeder
(Reuters) -A top U.S. banking regulator on Thursday announced plans for new short-term liquidity rules to help lenders respond to runs by depositors of the kind that felled Silicon Valley Bank and other mid-size banks last year.
Michael Hsu, the acting Comptroller of the Currency, said larger banks should be required to prove they are able to quickly access funds over the "ultra-short term."
He noted that current liquidity rules gauge bank health over a 30-day period, which does not assess their abilities to withstand a sudden and severe run. Instead, the new requirement would measure larger and midsize banks' ability to gather cash over a period of just several days, he said.
As part of that effort, Hsu said regulators should further push banks to be ready to access emergency funding through the Federal Reserve's discount window, a tool banks have long avoided for fear of appearing weak to markets.
"You need to be able to get to the weekend, and that means being able to convert whatever you have into cash, and the most reliable way to do that is through the discount window," he said at an event hosted by Columbia University.
Hsu's remarks were the latest sign that regulators are continuing to tinker with the rule book after a spate of bank failures in the spring of 2023. He did not offer specifics on which banks would be subjected to such a rule, or timing for when it would be proposed. Bank regulators are already working on several rule-writing projects to toughen rules on banks, which the industry is fiercely opposing.
Under Hsu's suggested rule, banks would be measured by their exposure to uninsured deposits like the kind that quickly fled SVB, and give credit to firms that pre-position collateral at the discount window so they can quickly access emergency funds if needed.
As part of that effort, banks would be assessed on their preparedness to access the window, which could include mandatory test draws from the window during calmer periods.
"This would make clear that regulators expect banks in stress to utilize the discount window to help cover short term liquidity outflows when needed. This regulatory expectation
could help de-stigmatize discount window usage," he said.
Regulators have tried for years to encourage banks to view the discount window as a viable tool. But a Reuters analysis from 2023 found many banks were unprepared to access it, including some larger firms.
And in recent days, several banks have reported lower profits, due in part to having to pay more to hold on to deposits amid higher interest rates.