Liquidity Coverage Ratio Rule: Treatment of Certain Municipal Obligations as High-Quality Liquid Assets
Final rule.
CFR Part: "12 CFR Part 50"; "12 CFR Part 249"; "12 CFR Part 329"
RIN Number: "RIN 1557-AE36"; "RIN 7100-AF10"; "RIN 3064-AE77"
Citation: "84 FR 25975"
Document Number: "Docket ID OCC-2018-0013"; "Docket No. R-1616"
Page Number: "25975"
"Rules and Regulations"
Agency: "
SUMMARY: The OCC, the Board, and the
DATES: The final rule is effective on
FOR FURTHER INFORMATION CONTACT:
OCC:
Board:
SUPPLEMENTARY INFORMATION:
I. Background
FOOTNOTE 1 79 FR 61440 (
FOOTNOTE 2 Id. END FOOTNOTE
FOOTNOTE 3 See section 1 of the LCR rule. On
In 2016, the Board amended its LCR rule to include certain
FOOTNOTE 4 81 FR 21223 (
FOOTNOTE 5 The 2016 Amendments defined a general obligation as a bond or similar obligation that is backed by the full faith and credit of a public sector entity. 12 CFR 249.20(c)(2). END FOOTNOTE
The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) was enacted on
FOOTNOTE 6 Public Law 115-174, 132 Stat. 1296-1368 (2018). END FOOTNOTE
FOOTNOTE 7 12 U.S.C. 1828(aa). END FOOTNOTE
II. Interim Final Rule
On
FOOTNOTE 8 83 FR 44451 (
The interim final rule added a definition to the agencies' rule for the term "municipal obligations," which, consistent with the EGRRCPA, means an obligation of (1) a state or any political subdivision thereof or (2) any agency or instrumentality of a state or any political subdivision thereof. In addition, the interim final rule amended the HQLA criteria with respect to level 2B liquid assets by adding municipal obligations that, as of the LCR calculation date, are both liquid and readily-marketable and investment grade (under 12 CFR part 1) /9/ to the list of assets that are eligible for treatment as level 2B liquid assets. /10/
FOOTNOTE 9 The OCC's definition of "investment grade" under 12 CFR 1.2 provides that "[i]nvestment grade means the issuer of a security has an adequate capacity to meet financial commitments under the security for the projected life of the asset or exposure. An issuer has an adequate capacity to meet financial commitments if the risk of default by the obligor is low and the full and timely repayment of principal and interest is expected." 12 CFR 1.2. END FOOTNOTE
FOOTNOTE 10 12 CFR 50.20 (OCC); 12 CFR 249.20 (Board); 12 CFR 329.20 (FDIC). END FOOTNOTE
Consistent with section 403 of the EGRRCPA, the interim final rule also amended the definition of "liquid and readily-marketable" in the
FOOTNOTE 11 Under the Board's rule, a liquid and readily-marketable security is a security that is traded in an active secondary market with: (1) More than two committed market makers; (2) a large number of non-market maker participants on both the buying and selling sides of transactions; (3) timely and observable market prices; and (4) a high trading volume. 12 CFR 249.3. END FOOTNOTE
The interim final rule also rescinded the Board's 2016 Amendments so that municipal obligations under the Board's rule are treated consistently with section 403 of the EGRRCPA.
III. Comments Received
The agencies received nine comment letters addressing the interim final rule, including letters from trade associations, private sector enterprises, and one individual. Commenters generally expressed support for the inclusion of certain municipal obligations as HQLA and the agencies' implementation of section 403 of the EGRRCPA through the interim final rule. Many commenters asserted that municipal obligations were a suitable asset class for HQLA eligibility, with qualities consistent with other level 2B liquid assets, and that the interim final rule effectively satisfied the underlying intent of section 403 of the EGRRCPA. Some commenters suggested additional changes to the LCR rule for the agencies' consideration, including changes that were not addressed or affected by section 403 of the EGRRCPA.
Comments Regarding Eligibility and Treatment of Municipal Obligations as HQLA
Some commenters requested that the agencies treat municipal obligations in the same manner as other asset types includable as HQLA, without imposing additional limitations, such as those in the Board's 2016 Amendments. /12/
FOOTNOTE 12 For example, the 2016 Amendments limited the inclusion of municipal obligations in a Board-supervised institution's HQLA amount to 5 percent of the institution's total HQLA amount and limited the inclusion as eligible HQLA of municipal obligations of any single issuer to two times the average daily trading volume of all general obligation securities of the issuer over the previous four quarters. END FOOTNOTE
Other commenters argued that municipal obligations should not be subject to certain requirements and limitations applicable to HQLA, such as the haircuts and composition limits generally applicable to level 2B liquid assets. /13/ Alternatively, commenters argued that these requirements should be liberalized with respect to municipal obligations. Another commenter recommended that the definition of liquid and readily-marketable should be revised, because it would exclude from HQLA certain municipal obligation securities with a liquidity risk profile similar to other assets that currently qualify as level 2B liquid assets.
FOOTNOTE 13 See 12 CFR 50.21 (OCC), 12 CFR 249.21 (Board), and 12 CFR 329.21 (FDIC). END FOOTNOTE
Section 403 requires the agencies to treat a municipal obligation as a level 2B liquid asset if the obligation, as of the calculation date, is liquid and readily-marketable and investment grade. The interim final rule implemented section 403, imposing only those restrictions on municipal obligations that also apply to other level 2B liquid assets. /14/ In addition, the interim final rule defined "liquid and readily-marketable" as having the meaning given the term in 12 CFR 249.3, as specifically mandated by section 403. Accordingly, the agencies believe that it would not be appropriate to make changes to the restrictions applicable to municipal obligations as level 2B liquid assets or the definition of "liquid and readily-marketable" in this final rule.
FOOTNOTE 14 As part of the interim final rule, the Board rescinded the 2016 Amendments. END FOOTNOTE
Comments Regarding Broader Changes to the LCR Rule
Several commenters, while supportive of the interim final rule, requested broad changes to the LCR rule beyond the treatment of municipal obligations as HQLA. For example, certain commenters argued that the agencies should tailor the application of the LCR rule based on the risk profile, operations, and complexity of the banking organization. These commenters argued that the current applicability thresholds are outdated and overly reliant on fixed asset thresholds. These commenters also urged the agencies to eliminate the
One commenter recommended that the agencies revise the scope of assets recognized as HQLA. The commenter also requested that the agencies review the LCR rule's inflow and outflow assumptions, including its stability assumptions. This commenter also recommended revising the LCR rule to better reflect market realities, including by revising maturity assumptions, the treatment of retail trusts, and the definition of operational deposits. This commenter also recommended that the agencies either "remove or increase the lag time" associated with LCR disclosures.
The agencies are not adopting these broader proposed changes in this final rule. /15/ The interim final rule was issued to implement section 403 of the EGRRCPA, and broader revisions to the LCR rule fall outside of the scope of the changes that the agencies sought comment on in the interim final rule.
FOOTNOTE 15 The agencies have proposed revisions to the LCR rule in separate rulemakings that would address certain comments regarding the scope and applicability thresholds. See supra n. 3. END FOOTNOTE
IV. Description of the Final Rule
For the reasons described above, the agencies are adopting the interim final rule as final without change.
The interim final rule's changes to the LCR rule provided covered companies greater flexibility in meeting the LCR rule's minimum requirements by expanding the types of assets that are eligible as HQLA. For
This final rule does not otherwise affect which assets can count as HQLA under the LCR rule.
V. Regulatory Analysis
A. Administrative Procedure Act and Effective Date
The Administrative Procedure Act (APA) generally requires that a final rule be published in the
FOOTNOTE 16 5 U.S.C. 553(d). END FOOTNOTE
B.
Pursuant to section 302(a) of the
FOOTNOTE 17 12 U.S.C. 4802(a). END FOOTNOTE
FOOTNOTE 18 12 U.S.C. 4802(b). END FOOTNOTE
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) does not apply to a rulemaking when a general notice of proposed rulemaking is not required. /19/ Because the agencies previously determined that it was unnecessary to publish a general notice of proposed rulemaking for the interim final rule, the RFA's requirements relating to an initial and final regulatory flexibility analysis do not apply to this final rule. Nonetheless, the agencies believe that, because size thresholds for covered companies under the final rule exceed the size limits of "small entities" as defined in section 601(6) of the RFA, small entities are not affected by the final rule. /20/ Thus, the final rule does not have a significant economic impact on a substantial number of small entities.
FOOTNOTE 19 5 U.S.C. 603, 604. END FOOTNOTE
FOOTNOTE 20 Under regulations issued by the
D. Paperwork Reduction Act of 1995
The Paperwork Reduction Act of 1995 /21/ states that no agency may conduct or sponsor, nor is the respondent required to respond to, an information collection unless it displays a currently valid
FOOTNOTE 21 44 U.S.C. 3501-3521. END FOOTNOTE
E. Use of Plain Language
Section 722 of the Gramm-Leach Bliley Act /22/ requires the agencies to use plain language in all proposed and final rules published after
FOOTNOTE 22 Public Law 106-102, section 722, 113 Stat. 1338, 1471 (1999). END FOOTNOTE
F. Unfunded Mandates Reform Act of 1995
Consistent with section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded Mandates Act), /23/ the OCC prepares an impact statement before promulgating any final rule for which a general notice of proposed rulemaking was published. Because the OCC did not publish a general notice of proposed rulemaking for the reasons described above in paragraph A of this section, the OCC has not prepared an impact statement for the final rule under the Unfunded Mandates Act.
FOOTNOTE 23 2 U.S.C. 1532. END FOOTNOTE
List of Subjects
12 CFR Part 50
Administrative practice and procedure, Banks, Banking, Liquidity, Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 249
Administrative practice and procedure, Banks, Banking,
12 CFR Part 329
Administrative practice and procedure, Banks, Banking,
DEPARTMENT OF THE
12 CFR Chapter I
PART 50--LIQUIDITY RISK MEASUREMENT STANDARDS
The interim final rule amending 12 CFR part 50 of chapter I, title 12 of the Code of Federal Regulations, which was published at 83 FR 44451 on
12 CFR Chapter II
PART 249--LIQUIDITY RISK MEASUREMENT STANDARDS (REGULATION WW)
The interim final rule amending 12 CFR part 249 of chapter II, title 12 of the Code of Federal Regulations, which was published at 83 FR 44451 on
12 CFR Chapter III
PART 329--LIQUIDITY RISK STANDARDS
The interim final rule amending 12 CFR part 329 of chapter III, title 12 of the Code of Federal Regulations, which was published at 83 FR 44451 on
Dated:
Comptroller of the Currency.
By order of the
Secretary of the Board.
By order of the Board of Directors.
Dated at
Assistant Executive Secretary.
[FR Doc. 2019-11715 Filed 6-4-19;
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P
Rep. Bass Introduces Bill on Health Insurance Coverage Continuity for Former Foster Youth
Vertafore Addresses Industry Pain Points, Award Winners Announced at Accelerate, Powered by NetVU Conference
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News