These problems would not exist if the Congress had not lowered Fannie and Freddie's standards.
There's where the reform must begin.
* * * * * J B K * * * * *
San Francisco
March 29 (Bloomberg) -- In 2,615 pages of financial reform legislation introduced in the U.S. Congress, there are no rules to ensure that banks keep enough cash-like assets when credit disappears.
Guidelines on liquidity risk management, which were published March 17 by the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corp., also avoided spelling out how much banks need to hold, and in what form, to make sure they don't collapse if short-term lending dries up. International efforts to do that for the global banking system could take years to implement.
Citigroup Inc., which came close to a funding shortfall in 2008 and received a $45 billion government infusion, is among U.S. lenders that have hoarded cash since credit markets seized up two years ago. Even so, the banks continue to rely on overnight borrowing for their funding needs. While down from its peak in 2007, the U.S. repo market, which provides banks with short-term lending backed by collateral, is still $2 trillion.
"The temptation always is to lower liquidity levels when times are good," said Baylor Lancaster, an analyst at CreditSights Inc. in Miami. "That's why we need rules. In three years' time, are people really going to care about liquidity as much as they do now?"
http://www.bloomberg.com/apps/news?pid=20601109&sid=aN8ApDdiCwcA&pos=12
