In prepared remarks delivered at a roundtable on bank liquidity and the lender of last resort, the U.S. Department of the Treasury argued for a wholesale re-examination of post-2008 liquidity regulation and set out a near-term reform aimed at restoring the central bank’s lender-of-last-resort role. The remarks proposed that liquidity coverage ratio requirements and other liquidity rules should give capped recognition to borrowing capacity backed by collateral prepositioned at the discount window, to treat that capacity as monetizable liquidity and incentivize operational readiness. The Treasury framed existing liquidity requirements as an overcorrection that has constrained bank lending capacity and noted that large banks now allocate around 25 percent of balance sheets to safe assets, up from roughly 10 percent before the financial crisis. It highlighted shortcomings exposed in March 2023, where banks held sizeable Treasuries and agency mortgage-backed securities but had not fully prepositioned collateral and had untested discount window access, reinforcing stigma. The remarks also argued that buffers have become effectively “untouchable” hard minimums in practice, encouraging liquidity hoarding and delaying recourse to the discount window. For the proposed capped recognition, regulators were encouraged to explore calibrations linked to demonstrated discount window usage, potentially capping recognition at the lesser of an overall ceiling and a multiple of borrowing over a specified period, and to consider mechanisms to temporarily adjust the cap during severe stress. Beyond liquidity reform, the remarks indicated that regulators will soon propose a modernization of bank capital, while Treasury will continue to coordinate related initiatives, including advocacy for expanded deposit insurance coverage for noninterest-bearing transaction accounts and expectations of forthcoming proposals on AML/CFT supervision, model risk governance guidance affecting AI adoption, and efforts to reduce duplicative bank examinations.
U.S. Department of the Treasury 2026-03-03
U.S. Department of the Treasury calls for a reset of bank liquidity regulation including capped recognition of discount window borrowing capacity
The U.S. Treasury urged a review of post-2008 liquidity regulations, suggesting reforms to restore the central bank's lender-of-last-resort role by recognizing collateral-backed borrowing at the discount window as monetizable liquidity. It criticized current requirements as too restrictive, noting large banks' increased safe asset allocations and the stigma of discount window access. The Treasury also announced upcoming proposals on bank capital modernization, expanded deposit insurance, and AML/CFT supervision.