"That will be our starting point," said Bernanke, who was testifying before the Senate Banking Committee after delivering the Fed's semiannual monetary policy report to Congress. "We need to start with the international agreement and ask ourselves to what extent do we need to strengthen it, to what extent do we need to customize it for the U.S. context?"
The Basel Committee on Banking Supervision agreed in January to ease first-time international liquidity standards in a compromise deal meant to salvage an earlier proposal released two years ago that had been criticized for being too stringent.
The new proposal expanded the types of "highly liquid" assets included in a required liquidity buffer. It also allowed globally active banks to build a mandated buffer over time instead of immediately.
But such watered down liquidity requirements by the Basel Committee prompted Sen. Jack Reed, D-R.I., to ask if the Fed had plans to follow suit given the potential for risk-taking and raised leverage in financial markets.
"Do you intend to follow that approach with respect to the cautionary words you gave us today about risk-taking and adding leverage and to the financial markets?" asked Reed.
Global regulators struggled to craft a final deal on a liquidity coverage ratio, with U.S. regulators pushing for tougher requirements. Bernanke alluded to the fact that regulators had spent a lot of time discussing what a reasonable ratio would be and the potential side effects the liquidity requirements could have in various markets.
Basel III requires two liquidity ratios—the liquidity coverage ratio and the net stable funding ratio—each designed for short-term and long-term liquidity needs. Regulators have more recently directed their attention to the longer-term liquidity buffer.
"There was a bit of iteration in terms of what the international agreement was," Bernanke said. "But we will certainly, of course, meet the international agreement and then we will be looking to see whether additional steps or U.S. customization is necessary."
Under the new plan, a bank's buffer could rest at 60% of outflows over a 30-day period when the rule becomes effective in 2015, and then increase steadily until reaching 100% four years later. Regulators also agreed to allow highly rated residential mortgages to be considered part of the buffer.
Bernanke reminded lawmakers that unlike capital requirements, designing a global liquidity rule has never been undertaken before by regulators and is a much tougher task to accomplish internationally, largely since liquidity can be so idiosyncratic.
More broadly, the Fed chief said U.S. regulators are aiming to complete the entire package of rules for U.S. banks by the middle of the year, but stopped short of offering a specific date.
"We are planning to have a final rule out on Basel III. I can't give you an exact date, but somewhere in the middle of this year, and with the aim to be beginning implementation of Basel III during 2013," Bernanke said.
He also noted that through regular stress testing exercises, nearly all U.S. banks are already on track in meeting the Basel III requirements.
"It's not a question of the banks not being adequately capitalized," Bernanke said. "They are already either at or about to reach the Basel III capital levels."
Still, one of the overarching concerns held by regulators and lawmakers alike—both in the U.S. and abroad—is the chance that rules will not be applied harmoniously among the 27 member nations which signed off on the December 2010 Basel III agreement.
Sen. Richard Shelby, R-Ala., raised specific concerns that Europe would not follow in the footsteps of the U.S. in adopting the package of capital and liquidity rules.
"Where is Basel III as far as implementation in Europe and the U.S.?" asked Shelby. "Because this is a very important regulatory challenge for everybody."
The central banker said U.S. regulators are in regular dialogue with their international counterparts on progress being made to adopt the Basel framework.
While he acknowledged that the euro zone's banking system is weaker than the U.S., foreign regulators are in the process of adopting Basel III.
"We are discussing with them some of the details of their plans, some of which differ from the international agreement in our view, but they are also in the process of implementing this agreement," Bernanke said.