On September 3, 2014, the Federal Reserve Board, the FDIC, and the OCC finalized a rule to establish a standardized minimum liquidity requirement for large and internationally active banking organizations. Pursuant to the rule, each institution must hold high quality, liquid assets (“HQLA”) that can be converted easily into cash in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a 30-day stress period.
The ratio of the firm’s liquid assets to its projected net cash outflow, its “liquidity coverage ratio” or “LCR,” applies to all banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposures. The LCR also applies to these banking organizations’ subsidiary depository institutions that have assets of $10 billion or more. A less stringent, modified LCR will apply to bank holding companies and savings and loan holding companies that do not meet these thresholds, but have $50 billion or more in total assets. Bank holding companies and savings and loan holding companies with substantial insurance or commercial operations are not covered by the rule. The final rule also does not apply to non-bank financial companies designated by the Financial Stability Oversight Council for enhanced supervision.
The final rule includes only a few modifications from the proposed version, including changes to the range of corporate debt and equity securities included in HQLA, a phasing-in of daily calculation requirements, a revised approach to address maturity mismatch during a 30-day period, and changes in the stress period, calculation frequency, and implementation timeline for the bank holding companies and savings and loan companies subject to the modified LCR. The rule is based on a liquidity standard agreed to by the BCBS and the LCR will establish an enhanced prudential liquidity standard consistent with section 165 of the Dodd- Frank Act. While the rule is generally consistent with the Basel Committee’s LCR standard, it is more stringent in certain areas, including a shorter transition period for implementation. US firms will be required to be fully compliant with the rule by January 1, 2017.
The final rule is available at: