October 29, 2019 / 3:11 PM / 21 days ago

U.S. Treasury's Mnuchin open to bank liquidity relief following overnight funding crunch: Bloomberg

(Reuters) - U.S. Treasury Secretary Steven Mnuchin said on Tuesday he is open to loosening liquidity requirements for big banks to relieve possible cash crunches in short-term funding markets, Bloomberg reported.

FILE PHOTO - Secretary of the Treasury Steven Mnuchin answers questions from the press after an interview on CNBC on the North Lawn of the White House in Washington, U.S., September 12, 2019. REUTERS/Sarah Silbiger.

“The banks have raised an issue around intra-day liquidity, and that is something that makes sense for regulators to look at,” Mnuchin told Bloomberg in an interview on Tuesday in Tel Aviv.

His comments came after weeks of turmoil in overnight lending markets that banks rely on for short-term funding needs.

While Mnuchin has sway over general financial policy-making in Washington, the Treasury Secretary has very little direct control over the nuts and bolts of bank regulation. The overwhelming share of that work falls to independent banking regulators including the Federal Reserve, which so far has resisted calls to ease liquidity regulations.

The Fed was forced to step in and provide liquidity in those markets after rates suddenly spiked, its first intervention there since the global financial crisis. The New York Federal Reserve already extended its support to that market, committing to offer at least $75 billion a day in cash injections market through Nov. 4.

Big U.S. banks have said liquidity requirements imposed by the Fed contributed to the market issues and that those required buffers have discouraged banks from lending in those markets. Fed Chairman Jay Powell said in September he did not believe liquidity requirements were too high.

“It’s not impossible that we would come to a view that the (liquidity coverage ratio) is calibrated too high, but that’s not something that we think right now,” he said at a press conference.

Mnuchin told Bloomberg he agreed with the Fed’s assessment that the turmoil was largely caused by a “technical issue,” but expressed openness toward broader policy changes.

“It’s a reasonable question: Have we gone too far in the other direction in requiring the banks to maintain this excess liquidity for intra-day operations?,” he added.

While specific rule changes would likely have to go through a formal and lengthy Fed rule-making process, the central bank can take a more relaxed approach when enforcing existing rules.

Earlier this month, Reuters reported that banks believed they had received the greenlight from Fed supervisors to hold more Treasury debt and less cash, a move that could help boost liquidity in that market.

A Treasury spokesman declined to elaborate on Mnuchin’s remarks when asked by Reuters. A Fed spokesman declined to comment.

Reporting by Shubham Kalia in Bengaluru and Pete Schroeder in Washington; editing by Michelle Price and David Gregorio

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