FAQs shed light on liquidity coverage ratio for large banking organizations

The liquidity coverage ratio (LCR) rule is the topic of new frequently asked questions issued Monday by the federal banking agencies.

The FAQs released by the Office of the Comptroller of the Currency (OCC), Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) address the final rule issued by the three agencies that took effect in January 2015. The rule applied a quantitative liquidity requirement in line with the liquidity coverage ratio (LCR) established by the Basel Committee on Banking Supervision (BCBS)

According to the agencies, the FAQs address treatment of:

  • outflows from liquidity facilities to public sector entities about variable rate demand note programs.
  • outflows for trusts.
  • outflows for trust ledger deposit accounts and custody assets.
  • multicurrency deposit balances.
  • inflows from secured loans to retail clients with open maturities.
  • eligible high-quality liquid assets and monetization in securities lending transactions.
  • certain deposits required to be held at a foreign central bank as foreign withdrawable reserves.

The FAQs also address determination of maturity for instruments with remote contingency call options.

The FAQs are based on staff interpretations of the rule based on facts and circumstances presented; they are not official rules or regulations, the three agencies noted.

The liquidity requirement, according to the agencies, promotes short-term resilience of the liquidity risk profile of large and internationally active banking organizations, “thereby improving the banking sector’s ability to absorb shocks arising from financial and economic stress, and to further improve the measurement and management of liquidity risk.” It generally applies to large, internationally active banking organizations ($250 billion or more in total assets or $10 billion or more in on- balance sheet foreign exposure, and to their consolidated subsidiaries that are depository institutions with $10 billion or more in total consolidated assets).

OCC Bulletin: Liquidity Coverage Ratio: Interagency Frequently Asked Questions

FDIC Financial Institution Letter (FIL): FIL-53-2017 – PDF

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