On May 3, 2016, the US Board of Governors of the Federal Reserve System approved a joint notice of proposed rulemaking to establish a net stable funding ratio in the US, in line with the framework previously established by the Basel Committee on Banking Supervision. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation previously approved the rule on April 26, 2016. The net stable funding ratio would require covered institutions to maintain stable sources of funding, including capital and long-term debt, over a one-year horizon. Specifically, a covered company’s ratio of (i) “available stable funding,” a measure of the stability of its equity and liabilities over a one-year time horizon to (ii) “required stable funding,” a calculation made based upon the liquidity characteristics of the institution’s assets, derivative exposures and commitments over the same one-year horizon, must be at least 1.0. With respect to assets that qualify as “available stable funding,” asset categories are assigned an “available stable funding” (ASF) weight, with Tier 1 regulatory capital and Tier 2 capital instruments with a maturity of over one year receiving a 100% ASF weight, and trade date payables, certain short-term funding and certain short-term retail brokered deposits receiving a 0% ASF weight. The rule is aimed at reducing liquidity risk by ensuring that a covered institution retains sufficient liquid assets in the event of funding disruptions or a liquidity run in order to remain viable.
The rule would apply to (i) bank holding companies, certain savings and loan holding companies and depository institutions, in each case, having $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposures, as well as to (ii) their depository institution subsidiaries having $10 billion or more in total consolidated assets. Less stringent requirements would also apply to bank holding companies and certain savings and loan holding companies having at least $50 billion, but less than $250 billion, in total consolidated assets. The effective date of the rule, as proposed, would be January 1, 2018.
Comments on the notice of proposed rulemaking are due by August 5, 2016.
The notice of proposed rulemaking is available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20160503a1.pdf.