Regulate liquidity, not just capital, to better stabilise financial systems

REGULATORS should improve liquidity management at banks to create a more stable financial system, as capital requirements may not be enough to do the job.

“(When) you raise the capital requirements on banks, you make banks less competitive and push activity out into the non-bank financial sector, where regulators don’t have a lot of visibility,” said William Dudley, chair of the Bretton Woods Committee (BWC), on Friday (Sep 13). US-based BWC was set up to advocate for global economic and financial cooperation.

“The goal shouldn’t be about making banks bulletproof; the goal should be making the financial system as stable as possible,” he added.