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Bernanke says banks need better liquidity

by Ira Teinowitz | Published May 10, 2012 at 2:07 PM

Federal Reserve Chairman Ben Bernanke said Thursday, May 10, that banks have made "considerable progress" in repairing and building their capital since the financial meltdown but have "more to do" to fully restore their health and adapt to the "post-crisis regulatory and economic environment."

In a speech given by satellite to the 48th Annual Conference on Bank Structure and Competition in Chicago, Bernanke said that the Fed's stress tests of 19 of the biggest institutions demonstrates progress at improving capital positions. He also said banks have increased their liquidity positions and large banks have doubled their supply of cash and securities since 2009.

Still, he added that they need more improvement. "Challenges on the liquidity front remain," he said.

"Some large firms still rely heavily on wholesale short-term funding, and the liquidity needs of the banking system as a whole may become somewhat higher for a while as some of the securities issued under the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program come due and as the unlimited insurance on noninterest-bearing transaction accounts expires at the end of the year."

He said he was hopeful that "over time, greater liquid asset positions and reduced dependence on wholesale short-term funding, together with more and better capital, will make the banking sector less susceptible to unexpected disruptions in short-term funding markets."

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