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Bernanke Says Fed to Press Banks to Curb Liquidity Risk

"Federal Reserve Chairman Ben S. Bernanke said the Fed plans to avert strains in the banking system by pushing financial companies to better manage liquidity risk and reduce reliance on wholesale funding.

"Regulators “will continue to press banks to reduce further their dependence on wholesale funding, which proved highly unreliable during the crisis,” Bernanke said in a speech yesterday in Stone Mountain, Georgia. “Banks of all sizes need to further strengthen their ability to identify, quantify and manage their liquidity risks.”

"Fed tests of whether banks could survive a severe recession have strengthened the banking system and aided economic growth, he said in his speech. In response to audience questions, he also said that expansionary monetary policies in the world’s largest economies are “mutually constructive.”

"Wielding new powers under the Dodd-Frank Act, the Fed has compelled the largest banks to retain earnings and strengthen their buffers against losses. The Fed said last month that 17 of the 18 largest U.S. banks -- including JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS) -- could withstand a deep recession while maintaining capital above a regulatory minimum."

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