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U.S. bank regulators set to adopt liquidity, swaps margin rules

The sun rises to the east of the U.S. Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst

WASHINGTON (Reuters) - U.S. bank regulators plan to adopt on Wednesday rules forcing big banks to hold more assets that they could sell easily in a credit crunch, a requirement that is closely linked to the experience of the 2007-2009 financial crisis.

Regulators also will unveil a separate proposal governing how much money swaps buyers and sellers must set aside when they make trades outside central clearing houses.

The rules from the Federal Reserve, Federal Deposit Insurance Corp (FDIC) and Office of the Comptroller of the Currency (OCC) are part of a series of reforms aimed at making banks sturdier and heading off another economic meltdown.

The liquidity rules, which call for big banks to hold enough liquid assets to meet their cash needs for 30 days, are a key pillar of the international agreement known as Basel III. They aim to ensure banks have easy-to-sell assets on hand so they could meet customer withdrawals or post collateral in a crunch.

U.S. regulators in October 2013 proposed liquidity requirements that were more stringent than the global agreement, with a shorter phase-in period for domestic banks such as JPMorgan Chase (JPM.N) and Goldman Sachs (GS.N) than their foreign counterparts would face.

The final rules, to be unveiled on Wednesday, have already sparked protests. That is because regulators will spell out which assets count as highly liquid. Banks will have to hold a minimum amount of these assets, such as U.S. Treasuries.

As in the initial proposal, municipal bonds will not count toward that buffer, a person familiar with the situation said. That has angered state officials, who say banks will buy fewer of their bonds and taxpayers will shoulder more costs for projects such as new roads.

"As stewards of our states' coffers and protectors of our states' financial resources, state treasurers were surprised to learn that federal regulators quietly posted their intent...to vote on significant and potentially very harmful rules," the National Association of State Treasurers said in a statement.


In a separate action, regulators expect to re-propose margin requirements for swaps trades conducted outside clearing houses.

Those rules were proposed in 2011 but were never made final. The new proposal due out Wednesday is expected to tie into guidelines released by the global Basel group last year.

Swaps, which mushroomed during the pre-crisis boom and were lightly regulated, largely must now be routed through clearing houses, or middlemen that take on the risk that trading partners will not deliver on their promises.

But some swaps are complicated and are still not cleared. The new rules will regulate how much margin counterparties must set aside for these riskier deals.

Experts said banks are keeping a close eye on the margin rules, which could be costly for them.

The regulators also are expected to take a third, unrelated action to finalize rules proposed in April 2014 that specify how banks must calculate their capital requirements.

(Reporting by Emily Stephenson; Editing by Cynthia Osterman)