Banking Agencies Amend and Invite Comment on Liquidity Coverage Ratio Rule

The FRB, OCC, and the FDIC recently jointly issued and invited comment on an interim final rule that amends the agencies’ liquidity coverage ratio rule (LCR Rule) to treat certain municipal obligations as high-quality liquid assets, as part of implementing the Economic Growth, Regulatory Relief, and Consumer Protection Act.

Covered companies subject to the LCR Rule are required to hold specified amounts of high-quality liquid assets that can be readily converted to cash during periods of financial stress.  The LCR Rule generally applies to a bank holding company, savings and loan holding company, or a depository institution if: (1) it has total consolidated assets equal to $250 billion or more, (2) it has total consolidated on-balance sheet foreign exposure equal to $10 billion or more, or (3) it is a depository institution with total consolidated assets equal to $10 billion or more and is a consolidated subsidiary of a firm that is subject to the LCR Rule.

The amendments to the LCR Rule now permit municipal obligations that are liquid, readily marketable, and investment grade to be treated as high-quality liquid assets.  As a result, covered companies will have greater flexibility in meeting the minimum liquidity requirements under the LCR Rule since more types of assets will be eligible as high-quality liquid assets.

The interim final rule became effective on August 31, 2018, and comments must be received by October 1, 2018.

The full text of the interim final rule is available here.