Fed Liquidity Plan to add to Borrowing Costs

A proposal to make U.S. banks maintain 30-day war chests in case of a credit crisis is certain to add to borrowing costs, said a former leader of the global group that conceived of the standard.

Stefan Walter, who was secretary general of the Basel Committee on Banking Supervision when it approved an initial version of yesterday’s Federal Reserve proposal, said U.S. regulators have continued their tough interpretations of Basel III rules.

“Nothing is free,” said Walter, now a principal at Ernst & Young LLP, in an interview. “Buying more resilience in normal and good times means that liquidity will be priced-in more than before, and that will have a certain degree of impact on the cost of credit. That’s the obvious trade-off.”

Bloomberg

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