FDIC Proposed Rule on Liquidity Coverage Ratio
AT
OCTOBER 30TH’S FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OPEN MEETING, the Board of
Directors unanimously approved a proposed rule that would impose liquidity risk
standards on certain FDIC supervised institutions. The FDIC’s proposal is same
rule that was considered and approved by the Federal Reserve Board of Governors
(Fed) on Thursday, October 24.
A more detailed description of the provisions
and definitions contained within proposed
rule can be found here, but
the key tenets of the proposal are as follows:
–
Implements
a liquidity coverage ratio (LCR) consistent with the Basel Committee’s LCR
standard issued in January 2013.
–
The
LCR would apply to all internationally active banking organizations, based on a
30-day stress scenario, including:
o
Banking
organizations with $250 billion or more in total assets;
o
Banking
organizations with $10 billion or more in on-balance-sheet foreign exposure;
o
Consolidated
subsidiary depository institutions of internationally active banking
organizations with $10 billion or more in total assets; and
o
Companies
designated by the Financial Stability Oversight Council under Section 113 of
the Dodd- Frank Act.
§
However,
it would not apply to any firm with significant insurance or commercial
operations.
–
The
proposal also includes a modified LCR, based on a 21-day stress scenario, which
would only be applied to bank holding companies with between $50 billion and
$249 billion in total assets, but are not internationally active.
–
Defines
high-quality liquid assets (HQLA) and divides them into three categories: Level
I, Level 2A and Level 2B.
–
Establishes
a standardized liquidity stress test.
–
Generally,
the LCR would require covered companies to maintain a stock of unencumbered
HQLA (the numerator in the LCR) sufficient to survive a 30-day outflow stress
scenario (the denominator of the LCR). The modified LCR for
non-internationally active organizations would use a 21-day stress
scenario.
–
If
the ratio of liquid assets to outflows falls below 100% for three consecutive
days, institutions would be required to submit a plan to its regulator on how
it will re-achieve compliance.
–
Banks
would need to be 80 percent compliant by Jan. 1, 2015, 90 percent compliant by
Jan. 1, 2016, and 100 percent compliant by Jan. 1, 2017.
–
Comments
on this notice of proposed rulemaking must be received by January 31, 2014.
Additionally,
the FDIC staff indicated that it will propose reporting and public disclosure
requirements at a later date.
In
a brief statement, FDIC Chairman Martin Gruenberg noted that the proposed rule
will be the first quantitative liquidity requirement applied by the federal banking
agencies and said it is an “important step in helping to bolster the resilience
of large banking organizations in the U.S.” He said the objective of the
proposed liquidity coverage ratio is to help mitigate short-term liquidity
risk, an issue that had a demonstrable impact on large financial institutions
and the economy during the crisis. In closing, Gruenberg thanked the staff and
expressed confidence that this proposal will ensure than banks will be in a
stronger position to withstand stressed financial environments.
Thomas
Curry, Comptroller of the Currency, highlighted the collaborative efforts of
the regulatory agencies involved in drafting the rulemaking and echoed much of
Gruenberg’s praise of the proposal. Additionally, Curry said the Fed, FDIC and
OCC plan to address the management of longer-term liquidity risk through a
ratio currently under development by the Basel committee, and will promulgate a
joint rulemaking when the committee releases its management framework.
Vice
Chairman Thomas Hoenig, Director Jeremiah Norton, and Director of the Consumer
Financial Protection Bureau Richard Cordray thanked the FDIC staff, but did
offer substantive remarks.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Capital/Resolution Authority/SIFIs,Hearing Summaries Agency:FDIC,Publish Year:2013
AT
OCTOBER 30TH’S FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OPEN MEETING, the Board of
Directors unanimously approved a proposed rule that would impose liquidity risk
standards on certain FDIC supervised institutions. The FDIC’s proposal is same
rule that was considered and approved by the Federal Reserve Board of Governors
(Fed) on Thursday, October 24.
A more detailed description of the provisions
and definitions contained within proposed
rule can be found here, but
the key tenets of the proposal are as follows:
–
Implements
a liquidity coverage ratio (LCR) consistent with the Basel Committee’s LCR
standard issued in January 2013.
–
The
LCR would apply to all internationally active banking organizations, based on a
30-day stress scenario, including:
o
Banking
organizations with $250 billion or more in total assets;
o
Banking
organizations with $10 billion or more in on-balance-sheet foreign exposure;
o
Consolidated
subsidiary depository institutions of internationally active banking
organizations with $10 billion or more in total assets; and
o
Companies
designated by the Financial Stability Oversight Council under Section 113 of
the Dodd- Frank Act.
§
However,
it would not apply to any firm with significant insurance or commercial
operations.
–
The
proposal also includes a modified LCR, based on a 21-day stress scenario, which
would only be applied to bank holding companies with between $50 billion and
$249 billion in total assets, but are not internationally active.
–
Defines
high-quality liquid assets (HQLA) and divides them into three categories: Level
I, Level 2A and Level 2B.
–
Establishes
a standardized liquidity stress test.
–
Generally,
the LCR would require covered companies to maintain a stock of unencumbered
HQLA (the numerator in the LCR) sufficient to survive a 30-day outflow stress
scenario (the denominator of the LCR). The modified LCR for
non-internationally active organizations would use a 21-day stress
scenario.
–
If
the ratio of liquid assets to outflows falls below 100% for three consecutive
days, institutions would be required to submit a plan to its regulator on how
it will re-achieve compliance.
–
Banks
would need to be 80 percent compliant by Jan. 1, 2015, 90 percent compliant by
Jan. 1, 2016, and 100 percent compliant by Jan. 1, 2017.
–
Comments
on this notice of proposed rulemaking must be received by January 31, 2014.
Additionally,
the FDIC staff indicated that it will propose reporting and public disclosure
requirements at a later date.
In
a brief statement, FDIC Chairman Martin Gruenberg noted that the proposed rule
will be the first quantitative liquidity requirement applied by the federal banking
agencies and said it is an “important step in helping to bolster the resilience
of large banking organizations in the U.S.” He said the objective of the
proposed liquidity coverage ratio is to help mitigate short-term liquidity
risk, an issue that had a demonstrable impact on large financial institutions
and the economy during the crisis. In closing, Gruenberg thanked the staff and
expressed confidence that this proposal will ensure than banks will be in a
stronger position to withstand stressed financial environments.
Thomas
Curry, Comptroller of the Currency, highlighted the collaborative efforts of
the regulatory agencies involved in drafting the rulemaking and echoed much of
Gruenberg’s praise of the proposal. Additionally, Curry said the Fed, FDIC and
OCC plan to address the management of longer-term liquidity risk through a
ratio currently under development by the Basel committee, and will promulgate a
joint rulemaking when the committee releases its management framework.
Vice
Chairman Thomas Hoenig, Director Jeremiah Norton, and Director of the Consumer
Financial Protection Bureau Richard Cordray thanked the FDIC staff, but did
offer substantive remarks.