US bank regulator: new liquidity rules needed to handle bank runs

(Reuters) – A top U.S. banking regulator on Thursday called for new 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.

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.

“I believe a new targeted regulatory requirement for mid-size and large banks to have sufficient liquidity to cover stress outflows over a five-day period warrants serious consideration,” Acting Comptroller of the Currency Michael Hsu said, according to a copy of prepared remarks.

In an address to be delivered at Columbia University in New York, Hsu also addressed the need for banks to be ready to use the U.S. Federal Reserve’s so-called discount window, which many have avoided for fear of signaling weakness to markets and because of the need to offer eligible collateral.

Hsu said banks could receive credit for prepositioning such collateral at the discount window to make borrowing easier during stress periods.

“The rule should also clarify operational preparedness expectations related to the discount window, perhaps even including a requirement to do periodic test draws,” Hsu said.

(Reporting by Douglas Gillison; Editing by Chizu Nomiyama)