Federal Regulators Finalize Bank Rules, Eye Messy Derivatives

Federal regulators moved swiftly today and finalized new “liquidity coverage ratio” rules while also starting the process of tackling one of the biggest and most catastrophic risks facing the world economy: big bank derivatives exposure.

The new leverage ratio rule

The Leverage Ratio rule requires nearly 35 banks to maintain a large percentage of highly liquid assets. As a result, the large banks will likely be required to alter their investment portfolio and raise by $100 billion highly liquid assets. As previously reported in ValueWalk, the goal of the rule is better protection during a market crash. If markets were to “freeze up” again, particularly in lightly traded over the counter debt instruments and derivatives products, it could cause major problems...