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Thursday, September 4, 2014

ABA Wins Several Changes to Liquidity Coverage Ratio

The Federal Reserve, FDIC and OCC finalized the Liquidity Coverage Ratio, which would require banks to hold highly liquid assets relative to cash outflows over a 30-day period during a stressed scenario. The LCR will generally apply to banking organizations with over $50 billion in assets.

The final rule implements several positive changes that reflect ABA advocacy. For example, the regulators implemented a transition period for daily calculation of the LCR and eliminated the daily calculation requirement for the modified LCR. In response to concerns from ABA and others about restraining the availability of liquid assets, the agencies expanded the definition of high-quality liquid assets to include certain corporate debt and equity.

Although the regulators did not include municipal securities in their definition of HQLA, the Fed acknowledged that many municipal securities are highly liquid and said it would consider issuing a proposal to include them as HQLA, as ABA urged in a letter last month.

The regulators also made several technical changes suggested by ABA, which include the treatment of collateralized deposits and an expansion of the definition of operational deposits.

Read the final rule.

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