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US Federal Reserve Vice Chair Randal Quarles said Thursday policymakers should consider changes that would make it easier for banks to treat Treasury holdings as similar to reserves held with the central bank when meeting liquidity requirements.

“I think it is worth considering whether financial system efficiency may be improved if reserves and Treasury securities’ liquidity characteristics were regarded as more similar than they are today,” Quarles said in prepared remarks to be delivered at an event organized by the Money Marketeers of New York University.

Key notes

  • Fed’s Quarles says worth considering changes that help banks treat treasuries similar to reserves when meeting liquidity requirements.
  • Quarles says fed actively considering a change to liquidity rules for large banks that would use more average figures instead of year-end inputs says potential standing repo still of interest, but there are benefits to working with fed’s existing tools.
  • Quarles says there is still slack in the labor market.
  • Quarles says one option is for fed to allow banks to assume the discount window can be used in stress scenarios under certain conditions.
  • Quarles says coronavirus introduces new element of uncertainty for the economy.
  • Quarles says he expects inflation to move back to fed’s 2% target over the medium term.
  • Quarles says he is hopeful phase one deal with china will boost US exports.