An interagency set of questions and answers (Q&As) addressing banking regulators’ recent encouragement for banks to use their capital and liquidity buffers to keep lending during the coronavirus pandemic was released Thursday via a Financial Institution Letter (FIL) from the federal bank deposit insurer.
The Q&As respond to public inquiries received by the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve Board, and the Office of the Comptroller of the Currency (OCC) regarding the agencies’ statement issued Tuesday regarding the use of capital and liquidity buffers. The FIL notes that the buffers were designed to provide banking organizations “with the means to support the economy in adverse situations and allow banking organization[s] to continue to serve households and businesses.” It also reminds that regulators expect banking organizations to continue to manage their capital actions and liquidity risk prudently.
The Q&As assembled by the FDIC, Fed, and OCC address;
- the meaning of “liquidity buffer”;
- the purpose of the 90-day draws on the Fed’s discount window and whether prepayment would impact the maturity of the loan for LCR purposes;
- the meaning of a “capital buffer,” regulatory minimums, and how to use such a buffer in times of stress;
- how the statement on buffer usability interacts with triggers included in a recovery plan or a resolution plan; and
- whether the statement regarding the use of capital and liquidity buffers also applies to a banking organization’s total loss-absorbing capacity buffers (it does, according to the answer from the Fed in the Q&A).
Thursday’s FIL also notes the interim final rule also released Tuesday that revised the definition of eligible retained income in the agencies’ capital rules; the definition of eligible retained income directly affects the amount of capital a banking organization may distribute if it falls below its capital buffer, the letter notes. That interim rule is scheduled for publication in the Federal Register Friday, effective the same day. Comments will be accepted for 45 days (until about May 4).