Hoping to never relive the liquidity crisis that hampered America's banks during the financial crisis, the Federal Reserve Board on Thursday proposed a rule that, for the first time, creates a standardized minimum liquidity requirement for large and internationally active banks, as well as non-banks designated as systemically important by the Financial Stability Oversight Council.

Institutions would need to hold minimum amounts of high-quality, liquid assets—such as central bank reserves and government and corporate debt—that can be converted quickly and easily into cash. Each would be required to hold liquidity in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a short-term stress period. The goal is to ensure that banks have enough cash on hand to meet obligations for at least a 30-day credit freeze, something few were able to do during the financial crisis.

"Liquidity is essential to a bank's viability and central to the smooth functioning of the financial system," Fed Chairman Ben Bernanke said in a statement. "The proposed rule would, for the first time in the U.S., put in place a quantitative liquidity requirement that would foster a more resilient and safer financial system in conjunction with other reforms."

The ratio of the firm's liquid assets to its projected net cash outflow is its "liquidity coverage ratio," or LCR. The proposed LCR requirement would apply to all internationally active banking organizations—generally, those with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure—and to systemically important, non-bank financial institutions.

The proposed rule applies a less stringent, modified LCR to bank holding companies and savings and loan holding companies that are not internationally active, but have more than $50 billion in total assets. Bank holding companies, savings and loan holding companies, and non-banks with substantial insurance subsidiaries or operations are not covered by the rule.

The proposal defines various categories of high quality, liquid assets (HQLA).

Level 1 liquid assets are the highest quality and most liquid assets and include excess reserves held at the Federal Reserve; withdrawable reserves held at a foreign central bank; securities issued by, or guaranteed by, the U.S. government; and securities guaranteed by a sovereign entity or central bank that are assigned a 0 percent risk weight. There assets may be included in the HQLA amount without limitation.

Level 2A liquid assets demonstrate a high level of liquidity, but with a higher risk for liquidity impediments. They would be subject to a 15 percent haircut under the proposal and may only comprise 40 percent of total HQLA. Examples include claims guaranteed by a sovereign entity or a multilateral development bank that are assigned a 20 percent risk weighting under regulatory capital rules.

Level 2B liquid assets generally include: investment-grade, publicly-traded corporate debt securities and publicly-traded equities on the Standard & Poor's 500 Index or an equivalent index. Because these are subject to significantly higher risk of loss of liquidity due to idiosyncratic or market-wide factors, they are would be subject to a 50 percent haircut and can only comprise 15 percent of total HQLA.

The liquidity proposal is based on a standard agreed to by the international Basel Committee on Banking Supervision. The Federal Reserve, however, says its LCR standard is more stringent than the Basel III accord because it specifies what qualifies as high quality, liquid assets and limits the range of what is accepted internationally (out are private label mortgage-backed securities). The proposed transition period is also shorter than that what's included in the Basel agreement. U.S. firms would begin the LCR transition period on Jan. 1, 2015, and would be required to be fully compliant by Jan. 1, 2017, roughly a year sooner than under Basel III.

Under the proposed rule, covered companies would be required to continuously maintain a minimum liquidity coverage ratio of 100 percent. The ratio would be calculated by dividing a company's high quality liquid assets by its total net cash outflow amount over a 30 day stress scenario.

The proposal would give supervisors flexibility for responding when an LCR falls below the requirement. It would, however, require that the entity submit a plan to its primary federal regulator on how it plans to achieve compliance with the proposed requirements if its LCR is below 100 percent for three consecutive business days or longer, or if the supervisor determines it to be materially noncompliant with the proposal.

The Federal Reserve developed the proposed rule with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Comments will be received through Jan. 31, 2014.

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