Federal Banking Agencies Adopt Changes Made to Regulatory Capital Rule and Liquidity Coverage Ratio Rule Under Interim Final Rules

The OCC, the Board of Governors of the Federal Reserve System (the Board), and the FDIC (collectively, the Agencies) recently issued a final rule that adopts the revisions made to the regulatory capital rule and the liquidity coverage ratio (LCR) rule under the interim final rules that the Agencies released on March 23, 2020 (first interim final rule), April 13, 2020 (second interim final rule), and May 6, 2020 (third interim final rule), with no additional changes.  The final rule will go into effect 60 days after it is published in the Federal Register.

The first interim final rule permits a banking organization to exclude non-recourse exposures acquired as part of the Money Market Mutual Fund Liquidity Facility (MMLF) from its total leverage exposure, average total consolidated assets, risk-weighted assets and standardized total risk-weighted assets, as applicable.  The second interim final rule allows a banking organization to exclude exposures pledged as collateral to the Paycheck Protection Program Liquidity Facility (PPPLF) from the organization’s total leverage exposure, average total consolidated assets, advanced approaches total risk-weighted assets, and standardized total risk-weighted assets, as applicable.  Moreover, the second interim final rule provides that a banking organization must apply a zero percent risk weight to Paycheck Protection Program (PPP) covered loans, as required by the CARES Act, regardless of whether they are pledged under the PPPLF.

Further, the third interim final rule provides that a covered company must neutralize the LCR effects of advances made by the MMLF and PPPLF along with the assets securing these advances.  The third interim final rule generally requires outflow amounts associated with Covered Federal Reserve Facility Funding and inflow amounts associated with the assets securing this funding to be excluded from the company’s total net cash outflow amount under the LCR rule.

As indicated above, the Agencies adopted these interim final rules as final with no changes.