Mnuchin open to looser bank liquidity rules after September cash crunch

Treasury Secretary Steven Mnuchin is open to loosening financial crisis-era liquidity requirements for big banks to relieve cash crunches in short-term funding markets, according to Bloomberg News.

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“The banks have raised an issue around intra-day liquidity, and that is something that makes sense for regulators to look at,” Mnuchin told Bloomberg.

Mnuchin, who said he met with bank executives, including JPMorgan Chase CEO Jamie Dimon, about how to avoid liquidity problems, noted that it might be possible to work around regulations without raising risks.

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His comments come after weeks of turmoil in the overnight lending market forced the Federal Reserve to inject a vast amount of money as rates suddenly spiked, marking the central bank’s first intervention since the global financial crisis more than a decade ago.

Federal Reserve Board Chair Jerome Powell speaks at a news conference, Sept. 18, 2019, in Washington. (AP Photo/Patrick Semansky)

Since then, the New York Fed has stepped up the size of its overnight repurchase agreement (repo) operations to at least $120 billion a day. That’s in addition to the $60 billion the Fed promised to buy each month. Although the market stress hasn’t affected borrowing costs for consumers, the concern is that it might spill over into the broader economy.

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Mnuchin said the turmoil was largely the result of a “technical issue” involving a corporate tax deadline that drained money from the banking system and the Fed appears to have solved the problem. Any issues with regulation, he said, are separate. Big banks, however, contend that strict liquidity requirements in 2008 also contributed to the volatility.

“It’s a reasonable question,” Mnuchin said. “Have we gone too far in the other direction in requiring the banks to maintain this excess liquidity for intra-day operations?”

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