Liquidity Risk Measurement, Standards, and Monitoring

215 Pages·2013·0.7 MB·English

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 50
Docket ID OCC-2013-0016
RIN AD-74

FEDERAL RESERVE SYSTEM
12 CFR Part 249
Regulation WW; Docket No. R-[xxxx]

FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 329
RIN 3064-AE04

Liquidity Coverage Ratio: Liquidity Risk Measurement, Standards, and Monitoring
AGENCIES: Office of the Comptroller of the Currency, Department of the Treasury; Board of
Governors of the Federal Reserve System; and Federal Deposit Insurance Corporation.
ACTION: Notice of proposed rulemaking with request for public comment.
SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board of Governors of
the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) are
requesting comment on a proposed rule (proposed rule) that would implement a quantitative
liquidity requirement consistent with the liquidity coverage ratio standard established by the
Basel Committee on Banking Supervision. The requirement is designed to promote the short-
term resilience of the liquidity risk profile of internationally active banking organizations,
thereby improving the banking sector’s ability to absorb shocks arising from financial and
economic stress, as well as improvements in the measurement and management of liquidity risk.
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The proposed rule would apply to all internationally active banking organizations, generally,
bank holding companies, certain savings and loan holding companies, and depository institutions
with more than $250 billion in total assets or more than $10 billion in on-balance sheet foreign
exposure, and to their consolidated subsidiaries that are depository institutions with $10 billion
or more in total consolidated assets. The proposed rule would also apply to companies
designated for supervision by the Board by the Financial Stability Oversight Council under
section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5323) that do not have significant insurance operations and to their consolidated subsidiaries that
are depository institutions with $10 billion or more in total consolidated assets. The Board also
is proposing on its own a modified liquidity coverage ratio standard that is based on a 21-
calendar day stress scenario rather than a 30-calendar day stress scenario for bank holding
companies and savings and loan holding companies without significant insurance or commercial
operations that, in each case, have $50 billion or more in total consolidated assets.
DATES: Comments on this notice of proposed rulemaking must be received by January 31,
2014.
ADDRESSES: Comments should be directed to:
OCC: Because paper mail in the Washington, DC area is subject to delay, commenters are
encouraged to submit comments by the Federal eRulemaking Portal or e-mail, if possible. Please
use the title “Liquidity Coverage Ratio: Liquidity Risk Measurement, Standards, and
Monitoring” to facilitate the organization and distribution of the comments. You may submit
comments by any of the following methods:
• Federal eRulemaking Portal—"regulations.gov": Go to
http://www.regulations.gov. Enter “Docket ID OCC-2013-0016” in the Search Box and
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click "Search". Results can be filtered using the filtering tools on the left side of the
screen. Click on “Comment Now” to submit public comments. Click on the “Help” tab
on the Regulations.gov home page to get information on using Regulations.gov,
including instructions for submitting public comments.
• E-mail:
• Viewing Comments Electronically: Go to http://www.regulations.gov. Enter “Docket
ID OCC-2013-0016” in the Search box and click “Search”. Comments can be filtered by
Agency using the filtering tools on the left side of the screen. Click on the “Help” tab on
the Regulations.gov home page to get information on using Regulations.gov, including
instructions for viewing public comments, viewing other supporting and related
materials, and viewing the docket after the close of the comment period.
• Viewing Comments Personally: You may personally inspect and photocopy
comments at the OCC, 400 7th Street SW, Washington, DC. For security reasons, the
OCC requires that visitors make an appointment to inspect comments. You may do so by
calling [phone]. Upon arrival, visitors will be required to present valid
government-issued photo identification and to submit to security screening in order to
inspect and photocopy comments.
• Docket: You may also view or request available background documents and project
summaries using the methods described above.
Board: You may submit comments, identified by Docket No. R-[xxxx], by any of the following
methods:
• Agency Web Site: http://www.federalreserve.gov. Follow the instructions for submitting
comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for
submitting comments.
• E-mail:
• FAX: [phone] or [phone].
• Mail: Robert deV. Frierson, Secretary, Board of Governors of the Federal Reserve System,
th
20 Street and Constitution Avenue NW, Washington, DC 20551.
All public comments are available from the Board’s Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified
for technical reasons. Accordingly, your comments will not be edited to remove any identifying
or contact information. Public comments may also be viewed electronically or in paper form in
Room MP-500 of the Board’s Martin Building (20th and C Street NW) between 9:00 a.m. and
5:00 p.m. on weekdays.
FDIC: You may submit comments by any of the following methods:
• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for
submitting comments.
• Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html
• Mail: Robert E. Feldman, Executive Secretary, Attention: Comments/Legal ESS, Federal
Deposit Insurance Corporation, 550 17th Street, NW, Washington, DC 20429.
• Hand Delivered/Courier: The guard station at the rear of the 550 17th Street Building
(located on F Street), on business days between 7:00 a.m. and 5:00 p.m.
• E-mail:
OCC: Kerri Corn, Director, Credit and Market Risk Division, [phone]; Linda M.
Jennings, National Bank Examiner, [phone]; Patrick T. Tierney, Special Counsel, or
Tiffany Eng, Law Clerk, Legislative and Regulatory Activities Division, [phone]; or
Adam S. Trost, Senior Attorney, Securities and Corporate Practices Division, [phone]
Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
Board: Anna Lee Hewko, Deputy Associate Director, [phone]; David Emmel, Manager,
[phone], Credit, Market and Liquidity Risk Policy; Ann McKeehan, Senior Supervisory
Financial Analyst, [phone]; Andrew Willis, Senior Financial Analyst, [phone],
Capital and Regulatory Policy; April C. Snyder, Senior Counsel, [phone]; or Dafina
Stewart, Senior Attorney, [phone], Legal Division, Board of Governors of the Federal
Reserve System, 20th and C Streets NW, Washington, DC 20551. For the hearing impaired
only, Telecommunication Device for the Deaf (TDD), [phone].
FDIC: Kyle Hadley, Chief, Examination Support Section, [phone]; Rebecca Berryman,
Senior Capital Markets Policy Specialist, [phone]; Eric Schatten, Capital Markets Policy
Analyst, [phone], Capital Markets Branch Division of Risk Management Supervision,
[phone]; Gregory Feder, Counsel, [phone]; or Sue Dawley, Senior Attorney,
[phone], Supervision Branch, Legal Division, Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC, 20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
A. Summary of the Proposed Rule
B. Background
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C. Overview of the Proposed Rule
II. Minimum Liquidity Coverage Ratio
A. High-Quality Liquid Assets
1. Liquidity Characteristics of HQLA
a. Risk Profile
b. Market-based Characteristics
c. Central Bank Eligibility
2. Qualifying Criteria for Categories of HQLA
a. Level 1 Liquid Assets
b. Level 2A Liquid Assets
c. Level 2B Liquid Assets
3. Operational Requirements for HQLA
4. Generally Applicable Criteria for HQLA
a. Unencumbered
b. Client Pool Security
c. Treatment of HQLA held by U.S. Consolidated Subsidiaries
e. Exclusion of Rehypothecated Assets
f. Exclusion of Assets Designated as Operational
5. Calculation of the HQLA Amount
a. Calculation of Unadjusted Excess HQLA Amount
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b. Calculation of Adjusted Excess HQLA Amount
c. Example HQLA Calculation
B. Total Net Cash Outflow
1. Determining the Maturity of Instruments and Transactions
2. Cash Outflow Categories
a. Unsecured Retail Funding Outflow Amount
b. Structured Transaction Outflow Amount
c. Net Derivative Cash Outflow Amount
d. Mortgage Commitment Outflow Amount
e. Commitment Outflow Amount
f. Collateral Outflow Amount
g. Brokered Deposit Outflow Amount for Retail Customers or Counterparties
h. Unsecured Wholesale Funding Outflow Amount
i. Debt Security Outflow Amount
j. Secured Funding and Asset Exchange Outflow Amount
k. Foreign Central Bank Borrowings
l. Other Contractual Outflow Amounts
m. Excluded Amounts for Intragroup Transactions
3. Total Cash Inflow Amount
a. Items not included as inflows
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b. Net Derivatives Cash Inflow Amount
c. Retail Cash Inflow Amount
d. Unsecured Wholesale Cash Inflow Amount
e. Securities Cash Inflow Amount
f. Secured Lending and Asset Exchange Cash Inflow Amount
III. Liquidity Coverage Ratio Shortfall
IV. Transition and Timing
V. Modified Liquidity Coverage Ratio Applicable to Bank and Savings and Loan Holding
Companies
A. Overview and Applicability
B. High-Quality Liquid Assets
C. Total Net Cash Outflow
VI. Solicitation of Comments on Use of Plain Language
VII. Regulatory Flexibility Act
VIII. Paperwork Reduction Act
IX. OCC Unfunded Mandates Reform Act of 1995 Determination

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I. Introduction
A. Summary of the Proposed Rule
The Office of the Comptroller of the Currency (OCC), the Board of Governors of the
Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC)
(collectively, the agencies) are requesting comment on a proposed rule (proposed rule) that
would implement a liquidity coverage ratio requirement, consistent with the international
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liquidity standards published by the Basel Committee on Banking Supervision (BCBS), for
large, internationally active banking organizations, nonbank financial companies designated by
the Financial Stability Oversight Council for Board supervision that do not have substantial
insurance activities (covered nonbank companies), and their consolidated subsidiary depository
institutions with total assets greater than $10 billion. The BCBS published the international
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liquidity standards in December 2010 as a part of the Basel III reform package and revised the
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standards in January 2013 (as revised, the Basel III Revised Liquidity Framework). The Board
also is proposing on its own to implement a modified version of the liquidity coverage ratio
requirement as an enhanced prudential standard for bank holding companies and savings and

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The BCBS is a committee of banking supervisory authorities that was established by the
central bank governors of the G10 countries in 1975. It currently consists of senior
representatives of bank supervisory authorities and central banks from Argentina, Australia,
Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy,
Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South
Africa, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. Documents
issued by the BCBS are available through the Bank for International Settlements Website at
http:// www.bis.org.
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“Basel III: International framework for liquidity risk measurement, standards and monitoring”
(December 2010), available at http://www.bis.org/publ/bcbs188.pdf (Basel III Liquidity
Framework).
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“Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools” (January 2013),
available at http://www.bis.org/publ/bcbs238.htm.
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