Book a Demo
For more than a decade, one rule has been treated as settled in US liquidity regulation: the discount window does not count. The Federal Reserve's lending facility sits outside the Liquidity Coverage Ratio by design, because the post-2008 framework insisted that a bank's buffer must be its own high-quality assets, not a promise of central bank support. In 2026 the US Treasury and the Fed set out to change exactly that. The "liquidity reset" would let a bank count its pre-positioned discount window borrowing capacity inside the LCR. If it happens, it will be the most consequential shift in US liquidity regulation since the LCR was written in 2014.
What is the question on the table?
Strip it to one sentence: should the borrowing capacity a bank has at the Fed's discount window, backed by collateral it has pre-positioned there, count as a liquidity resource in the LCR?
Today the answer is no. If the reset is adopted, the answer becomes a qualified yes, with a cap. That is a reversal of principle, not a tweak, and it is why the idea has drawn so much attention.
How did the US reform agenda reverse?
What makes the reset striking is that it is the second US answer to March 2023, and it points in almost the opposite direction from the first.
The immediate post-SVB agenda, floated in Fed speeches during 2023 and 2024, was about filling gaps by adding requirements: extend full LCR-type rules down to the $100 billion tier of the Category I to IV framework, impose a minimum readily available liquidity requirement against uninsured deposits, mandate discount window collateral pre-positioning, and fix the internal stress testing regime whose scenarios had badly underestimated deposit flight. None of this was ever issued as a proposed rule, and it has effectively been superseded.
The current agenda inverts the emphasis. Instead of forcing banks to hold ever-larger self-insured buffers, it asks whether the smarter move is to make central bank liquidity operationally real and countable.
What does the liquidity reset propose?
The reset was launched by the Treasury Secretary's March 2026 statement, "A Reset on Liquidity Regulation." Its central proposal is capped recognition in the LCR of borrowing capacity from collateral pre-positioned at the discount window. Three features stand out:
- A cap. A bank could count discount window capacity only up to a limit.
- Demonstrated usage. The cap is sized by actual use of the facility, so a bank has to be operationally ready and active, not merely assert access.
- A stabilizer in stress. The cap would rise under pressure, working as what the Treasury described as an "automatic structural stabilizer" that expands recognized capacity when the system needs it most.
Alongside the LCR change, the reset flags follow-on work on internal liquidity stress testing and on resolution liquidity. The Fed has confirmed it is working to formally recognize discount window collateral in its liquidity regulations, with the FDIC aligned, and a separate Regulation A proposal in May 2026 is reforming the discount window's own operations.
Why is it a big deal?
The reset would partially reverse a foundational post-2008 choice. The Basel settlement drew a bright line: buffers must be bank-owned, and the central bank is a backstop, deliberately kept out of the numerator, so that banks cannot build their liquidity plans on the assumption of rescue. Counting discount window capacity inside the LCR moves the central bank, in part, into the ratio itself. That is a philosophical break, and it is why the story matters well beyond the technical detail.
How Is Liquidity Regulated Differently Across Basel, the EU, the UK and the US?
What is the case for it?
There is a serious argument that the old line has become counterproductive, and two lessons from 2023 drive it.
First, operational readiness is real liquidity. One of SVB's clearest failures was that it could not move collateral to the Fed fast enough when it needed cash, as the SVB case shows. Rewarding pre-positioned, tested capacity in the LCR aligns the rules with the readiness supervisors actually want.
Second, the buffer usability problem is unresolved. Banks are reluctant to spend their own published buffers in stress, because doing so signals distress. Central bank capacity, if its stigma can be removed, is usable in a way a self-owned buffer often is not. A stabilizer that expands exactly when markets seize up has an obvious appeal against the speed of modern runs, which the LCR's 30-day calibration handles poorly.
What are the risks, and what about stigma?
The deep obstacle is stigma. Banks have long avoided the discount window because being seen to use it is read as a sign of weakness, which is precisely why a facility meant to help can go unused in a crisis. The reset and the parallel Regulation A reform are partly an attempt to normalize the window, so that counting it is meaningful rather than theoretical. Whether stigma can be engineered away is an open question.
The risks mirror the benefits. Bringing the Fed into the numerator invites reliance on it and edges toward the dependency the post-2008 rules were built to prevent. It blurs the line between routine liquidity management and lender-of-last-resort support. And it strains international comparability: a US LCR that counts discount window capacity no longer measures the same thing as an EU LCR that does not. Critics, including the Bank Policy Institute, also argue that a cap tied to usage could leave banks that rarely borrow worse off than today. The cap and the demonstrated-usage condition are the safeguards meant to contain moral hazard; whether they are enough is the heart of the coming debate.
Where does the liquidity reset stand?
As of early November 2026, the liquidity reset is still a declared agenda, not a rule: speeches, the Treasury statement and confirmed Fed and FDIC intent, with a formal proposal widely expected before the end of 2026 but no rule text yet published. The UK is moving in parallel through CP5/26, its own consultation on counting central bank facilities, so the two regimes are pushing at the same door. The EU, so far, holds the orthodox line.
Key takeaways
- The liquidity reset asks whether pre-positioned discount window capacity should count inside the US LCR: capped, tied to demonstrated usage and expanding in stress.
- It would reverse the post-2008 principle that buffers must be bank-owned and that the central bank stays outside the ratio.
- It reflects the lessons of 2023 on operational readiness and buffer usability, and it raises real questions on moral hazard, stigma and international comparability.
- It remains pre-proposal: watch for the formal rulemaking, expected before the end of 2026, and for how the cap is calibrated.
For the full breakdown of the LCR, NSFR, ILAAP and liquidity reporting, and how Basel, the EU, the UK and the US differ, see Mirai RiskTech's guide liquidity regulation across Basel, the EU, the UK and the US: LCR, NSFR and reporting compared.
