US banks are to be obliged to secure more capital as protection against future credit squeezes, a watchdog has said.
The Securities and Exchange Commission (SEC) has made the move with the backing of government officials and the Federal Reserve, in a bid to force the firms to hold more liquid assets.
“The SEC is closely scrutinising the secured funding activities of each firm with a view to lengthening the average term of secured and unsecured funding arrangements. We are in the process of establishing additional scenarios, focused on shorter duration but more extreme events that entail a substantial loss of secured funding,” says Erik Sirri, director of trading and markets, SEC.
The credit crunch claimed its biggest US victim in March, with the collapse of the investment bank Bear Stearns due to difficulties with raising revenues on the comparatively illiquid money markets.
Bear has since been taken over by rivals JPMorgan in a Federal Reserve-backed deal.