On March 3, in remarks at a roundtable on bank liquidity, Treasury Under Secretary for Domestic Finance Jonathan McKernan called for significant reforms to the liquidity coverage ratio and the broader bank liquidity framework. McKernan characterized bank liquidity as “the next big-ticket item” for regulatory reform, arguing that post-crisis liquidity regulation was an “inevitable overcorrection” that has excessively limited banks’ ability to lend, noting that roughly 25 percent of large banks’ balance sheets are now allocated to safe assets compared to approximately 10 percent before the crisis. The remarks called for the liquidity coverage ratio to give “appropriate capped recognition of borrowing capacity associated with collateral prepositioned at the [Fed’s] discount window,” contending that this reform would rebalance the boundary between self-insurance and the lender of last resort and help normalize discount window access.

Fed Vice Chair for Supervision Michelle Bowman echoed similar concerns, stating that the liquidity coverage ratio effectively becomes an “isolated, unusable buffer” during stress because banks are reluctant to let their ratios fall below the 100 percent minimum, which forces banks to convert less liquid assets into cash. She also called the Fed’s discount window “a critical but underutilized tool,” noting that fragmented rules across the 12 Reserve Banks, weekly aggregate disclosure, and above-market interest rates discourage banks from using the facility when they need it most. Bowman contended that excessive liquidity hoarding requires the Fed to maintain a larger balance sheet, and said that modernizing the discount window and liquidity regulation should be compatible goals.