On April 1, 2016, the US Board of Governors of the Federal Reserve System released a final rule that would permit certain US general obligation state and municipal securities to count towards the high-quality liquid assets (HQLA) that large banking organizations may use to satisfy the liquidity coverage ratio (LCR) requirement. The LCR, as adopted by the federal banking agencies in September 2014, requires large banking organizations to hold a minimum amount of HQLA no less than their total net cash outflow amount over a 30-day forward-looking period of significant financial stress. Specifically, the final rule allows certain investment-grade, US general obligation state and municipal securities to qualify as HQLA up to certain levels if they meet the same liquidity criteria that currently apply to corporate debt securities. Although the LCR rule did not initially allow US municipal securities to be treated as HQLA, the Federal Reserve noted that subsequent analysis suggested that certain US municipal securities should qualify as HQLA because they have liquidity characteristics similar to other classes of HQLA, including corporate debt securities, and thus should receive similar treatment. The rule goes into effect on July 1, 2016. While the US LCR rule was an interagency rulemaking with substantively identical rules implemented by the Federal Reserve, the US Federal Deposit Insurance Corporation, and the US Office of the Comptroller of the Currency, neither the OCC nor the FDIC issued a similar rule with respect to the treatment of municipal securities as HQLA.

The final rule is available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20160401a1.pdf.