Office of Comptroller of Currency, Fed, FDIC Rule: Treatment of Certain Emergency Facilities in Regulatory Capital Rule, Liquidity Coverage Ratio Rule
The rule was issued by
DATES: The final rule is effective
FOR FURTHER INFORMATION CONTACT:
OCC:
Board:
* * *
The agencies are adopting these interim final rules as final with no changes.
Under this final rule, banking organizations may continue to neutralize the regulatory capital effects of participating in the Money Market Mutual Fund Liquidity Facility (MMLF) and the Paycheck Protection Program Liquidity Facility (PPPLF), and are required to continue to neutralize the LCR effects of participating in the MMLF and the PPPLF.
In addition, Paycheck Protection Program loans will receive a zero percent risk weight under the agencies' regulatory capital rules.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Capital Rule
B. LCR Rule
II. Overview of the Interim Final Rules and Public Comments
A.
B.
C. LCR Interim Final Rule
D. Public Comments
III. Summary of the Final Rule
IV. Administrative Law Matters
A. Congressional Review Act
B. Paperwork Reduction Act
C. Regulatory Flexibility Act
D.
E. Use of Plain Language
F. OCC Unfunded Mandates Reform Act of 1995
I. Background
In light of recent disruptions in economic conditions caused by the outbreak of the coronavirus disease 2019 and the stress in
In order to prevent disruptions in the money markets from destabilizing the financial system, the Board authorized the
In order to provide liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system, the Board authorized each of the Federal Reserve Banks to extend credit under the Paycheck Protection Program Liquidity Facility (PPPLF).[2] Under the PPPLF, each of the Federal Reserve Banks may extend non-recourse loans to institutions that are eligible to make Paycheck Protection Program (PPP) covered loans as defined in section 7(a)(36) of the Small Business Act.[3] Under the PPPLF, only PPP covered loans that are guaranteed by the
Eligible borrowers from the MMLF and PPPLF and holders of PPP covered loans include banking organizations supervised by the
A. Capital Rule
The capital rule requires banking organizations to comply with risk-based and leverage capital requirements, which are expressed as a ratio of regulatory capital to assets and certain other exposures. Risk-based capital requirements are based on risk-weighted assets, whereas leverage capital requirements are based on a measure of average total consolidated assets or total leverage exposure. Participation in the MMLF or the PPPLF affects the balance sheet of a banking organization. To participate in the MMLF, a banking organization must acquire and hold assets (that is, eligible collateral pledged to the
B. LCR Rule
The LCR rule requires covered companies[10] to calculate and maintain an amount of high-quality liquid assets (HQLA) sufficient to cover their total net cash outflows over a 30-day stress period. A covered company's LCR is the ratio of its HQLA amount divided by its total net cash outflow amount. The total net cash outflow amount is calculated as the difference between outflow and inflow amounts, which are determined by applying a standardized set of outflow and inflow rates to the cash flows of various assets and liabilities, together with off-balance sheet items, as specified in sections __.32 and __.33 of the LCR rule.[11]
Absent changes to the LCR rule, covered companies would have been required to recognize outflows for MMLF and PPPLF advances with a remaining maturity of 30 days or less and inflows for certain assets securing the MMLF and PPPLF advances. As a result, a covered company's participation in the MMLF or PPPLF could have affected its total net cash outflow amount, which potentially could have resulted in an inconsistent, unpredictable, and more volatile calculation of LCR requirements across covered companies.
II. Overview of the Interim Final Rules and Public Comments
A.
On
B.
On
Additionally, the PPPLF capital interim final rule provides that a banking organization must apply a zero percent risk weight to PPP covered loans, as required by Section 1102 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. A banking organization must apply a zero percent risk weight to PPP covered loans regardless of whether they are pledged under the PPPLF.
C. LCR Interim Final Rule
On
Advances from the MMLF and PPPLF facilities are non-recourse and the maturity of the advance generally aligns with the maturity of the collateral. Accordingly, a covered company is not exposed to credit or market risk from the collateral securing the MMLF or PPPLF advance that could otherwise affect the banking organization's ability to settle the loan and generally can use the value of cash received from the collateral to repay the advances at maturity. For these reasons, the agencies issued the LCR interim final rule to better align the treatment of these advances and collateral under the LCR rule with the liquidity risk associated with funding exposures through these facilities, and to ensure consistent and predictable treatment of covered companies' participation in the facilities under the LCR rule.
D. Public Comments
Comments on the
The agencies received two comment letters, from a trade association and an advocacy organization, addressing the MMLF capital interim final rule. These commenters supported the agencies' actions to encourage banking organizations' participation in the emergency lending facility. One commenter recommended broader considerations for money market mutual fund reform that are outside the scope of this rulemaking.
Comments on the
The agencies received 14 comment letters from industry participants, advocacy groups, trade associations, and individuals addressing the PPPLF interim final rule. Several commenters expressed support for the agencies' actions under the PPPLF capital interim final rule, and two of these commenters further supported the agencies' determination that good cause existed to issue the interim final rules without notice and comment. Several commenters suggested that the agencies extend the zero percent risk weight to PPP covered loans purchased in secondary markets. The agencies note that, under the PPPLF capital interim final rule, the risk weight for all PPP covered loans is zero percent.
Several commenters asserted that the PPPLF capital interim final rule should extend the leverage exclusion to PPP covered loans that are not pledged to the PPPLF, arguing that the treatment could discourage banking organizations that are not using the PPPLF from making PPP covered loans. Notwithstanding these arguments, the agencies are adopting as final the PPPLF capital interim final rule. The CARES Act set the risk weight of these loans at zero percent and did not exclude these loans from the leverage capital requirements. The favorable leverage capital treatment in the PPPLF capital interim final rule reflects the non-recourse nature of the relevant
Comments on the LCR Interim Final Rule
The agencies received one comment letter, from a trade association, on the LCR interim final rule. The commenter supported the requirements under the LCR interim final rule, arguing that the requirements encourage participation in the facilities, which ultimately provides benefits to small businesses, households, and investors.
III. Summary of the Final Rule
For the reasons discussed above, the agencies are adopting as final the revisions to the capital and LCR rules unchanged from the interim final rules. Accordingly, a banking organization may continue to exclude assets acquired as part of the MMLF and PPP covered loans pledged under the PPPLF from its total leverage exposure, average total consolidated assets, advanced approaches total risk-weighted assets, and standardized total risk-weighted assets, as applicable (and for purposes of the community bank leverage ratio).[13] Further, a banking organization must continue to apply a zero percent risk weight to all PPP covered loans that are not pledged to the PPPLF (regardless of whether the banking organization originated the loan). In addition, a banking organization subject to the LCR rule is required to continue excluding from its total net cash outflow amount outflow amounts associated with advances from the MMLF and PPPLF and inflow amounts associated with collateral securing the advances.
IV. Administrative Law Matters
A. Congressional Review Act
For purposes of the Congressional Review Act, the
The Congressional Review Act defines a "major rule" as any rule that the Administrator of the
As required by the Congressional Review Act, the agencies will submit the final rule and other appropriate reports to
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA) 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 OMB control number. This final rule does not contain any information collection requirements. However, in connection with the interim final rules, the Board temporarily revised the Financial Statements for Holding Companies (FR
Additionally, in connection with the interim final rules, the agencies made revisions to the Call Reports (OCC OMB Control No. 1557-0081; Board OMB Control No. 7100-0036; FDIC OMB Control No. 3064-0052), the Report of Assets and Liabilities of
Current Actions
The Board has extended the FR
Revision, With Extension, of the Following Information Collections
(1) Report title: Financial Statements for Holding Companies.
Agency form numbers: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES, and FR Y-9CS.
OMB control number: 7100-0128.
Effective date:
Frequency: Quarterly, semiannually, and annually.
Affected public: Businesses or other for-profit.
Respondents: Bank holding companies (BHCs), savings and loan holding companies (SLHCs), securities holding companies (SHCs), and
Estimated number of respondents:
FR Y-9C (non-advanced approaches (AA) HCs community bank leverage ratio (CBLR)) with less than
FR Y-9C (non AA HCs CBLR) with
FR Y-9C (non AA HCs non-CBLR) with less than
FR Y-9C (non AA HCs non-CBLR) with
FR Y-9C (AA HCs)--19,
FR Y-9LP--434,
FR Y-9SP--3,960,
FR Y-9ES--83,
FR Y-9CS--236.
Estimated average hours per response:
Reporting
FR Y-9C (non AA HCs CBLR) with less than
FR Y-9C (non AA HCs CBLR) with
FR Y-9C (non AA HCs non-CBLR) with less than
FR Y-9C (non AA HCs non-CBLR) with
FR Y-9C (AA HCs)--48.80,
FR Y-9LP--5.27,
FR Y-9SP--5.40,
FR Y-9ES--0.50,
FR Y-9CS--0.50.
Recordkeeping
FR Y-9C--1,
FR Y-9LP--1,
FR Y-9SP--0.50,
FR Y-9ES--0.50,
FR Y-9CS--0.50.
Estimated annual burden hours:
Reporting
FR Y-9C (non AA HCs CBLR) with less than
FR Y-9C (non AA HCs CBLR) with
FR Y-9C (non AA HCs non-CBLR) with less than
FR Y-9C (non AA HCs non-CBLR) with
FR Y-9C (AA HCs)--3,709,
FR Y-9LP--9,149,
FR Y-9SP--42,768,
FR Y-9ES--42,
FR Y-9CS--472.
Recordkeeping
FR Y-9C--1,452,
FR Y-9LP--1,736,
FR Y-9SP--3,960,
FR Y-9ES--42,
FR Y-9CS--472.
General description of report: The FR Y-9C consists of standardized financial statements similar to the Call Reports filed by banks and savings associations. The FR Y-9C collects consolidated data from HCs and is filed quarterly by top-tier HCs with total consolidated assets of
The FR Y-9LP, which collects parent company only financial data, must be submitted by each HC that files the FR Y-9C, as well as by each of its subsidiary HCs.[21] The report consists of standardized financial statements.
The FR Y-9SP is a parent company only financial statement filed semiannually by HCs with total consolidated assets of less than
The FR Y-9ES is filed annually by each employee stock ownership plan (ESOP) that is also an HC. The report collects financial data on the ESOP's benefit plan activities. The FR Y-9ES consists of four schedules: A Statement of Changes in Net Assets Available for Benefits, a Statement of Net Assets Available for Benefits, Memoranda, and Notes to the Financial Statements.
The FR Y-9CS is a free-form supplemental report that the Board may utilize to collect critical additional data deemed to be needed in an expedited manner from HCs on a voluntary basis. The data are used to assess and monitor emerging issues related to HCs, and the report is intended to supplement the other FR
Legal authorization and confidentiality: The Board has the authority to impose the reporting and recordkeeping requirements associated with the FR
With respect to the FR Y-9C report, Schedule HI's data item 7(g), "
In addition, for both the FR Y-9C report, Schedule HC's memorandum item 2.b. and the FR Y-9SP report, Schedule SC's memorandum item 2.b., the name and email address of the external auditing firm's engagement partner, is considered confidential commercial information and protected by exemption 4 of the
Additionally, items on the FR Y-9C, Schedule HC-C for loans modified under Section 4013, data items Memorandum items 16.a, "Number of Section 4013 loans outstanding"; and Memorandum items 16.b, "Outstanding balance of Section 4013 loans" are considered confidential. While the Board generally makes institution-level FR Y-9C report data publicly available, the Board is collecting Section 4013 loan information as part of condition reports for the impacted HCs and the Board considers disclosure of these items at the HC level would not be in the public interest. Such information is permitted to be collected on a confidential basis, consistent with 5 U.S.C. 552(b)(8). In addition, holding companies may be reluctant to offer modifications under Section 4013 if information on these modifications made by each holding company is publicly available, as analysts, investors, and other users of public FR Y-9C report information may penalize an institution for using the relief provided by the CARES Act. The Board may disclose Section 4013 loan data on an aggregated basis, consistent with confidentiality considerations.
Aside from the data items described above, the remaining data items on the FR Y-9C report and the FR Y-9SP report are generally not accorded confidential treatment. The data items collected on FR Y-9LP, FR Y-9ES, and FR Y-9CS reports, are also generally not accorded confidential treatment. As provided in the Board's Rules Regarding Availability of Information (12 CFR part 261), however, a respondent may request confidential treatment for any data items the respondent believes should be withheld pursuant to a
To the extent the instructions to the FR Y-9C, FR Y-9LP, FR Y-9SP, and FR Y-9ES reports each respectively direct the financial institution to retain the work papers and related materials used in preparation of each report, such material would only be obtained by the Board as part of the examination or supervision of the financial institution. Accordingly, such information is considered confidential pursuant to exemption 8 of the
(2) Report title: Complex Institution Liquidity Monitoring Report.
Agency form number: FR 2052a.
OMB control number: 7100-0361.
Effective date:
Frequency: Monthly, and each business day (daily).
Affected public: Businesses or other for-profit.
Respondents:
Estimated number of respondents: Monthly, 26; daily, 16.
Estimated average hours per response: Monthly, 120; daily, 220.
Estimated annual burden hours: 917,440.
General description of report: The Board uses the FR 2052a to monitor the overall liquidity profile of supervised institutions. These data provide detailed information on the liquidity risks within different business lines (e.g., financing of securities positions, prime brokerage activities). In particular, these data serve as part of the Board's supervisory surveillance program in its liquidity risk management area and provide timely information on firm-specific liquidity risks during periods of stress. Analyses of systemic and idiosyncratic liquidity risk issues are then used to inform the Board's supervisory processes, including the preparation of analytical reports that detail funding vulnerabilities.
Legal authorization and confidentiality: The FR 2052a is authorized pursuant to section 5 of the BHC Act (12 U.S.C. 1844), section 8 of the International Banking Act (12 U.S.C. 3106), section 165 of the Dodd-Frank Act (12 U.S.C. 5365), and section 10 of the Home Owners' Loan Act (12 U.S.C. 1467(a)) and is mandatory. Section 5(c) of the BHC Act authorizes the Board to require BHCs to submit reports to the Board regarding their financial condition. Section 8(a) of the International Banking Act subjects FBOs to the provisions of the BHC Act. Section 165 of the Dodd-Frank Act requires the Board to establish prudential standards for certain BHCs and FBOs, which include liquidity requirements. Section 10(g) of the Home Owners' Loan Act authorizes the Board to collect reports from SLHCs.
Financial institution information required by the FR 2052a is collected as part of the Board's supervisory process. Therefore, such information is entitled to confidential treatment under Exemption 8 of the
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires an agency to consider whether the rules it proposes will have a significant economic impact on a substantial number of small entities. The RFA requires an agency to prepare a final regulatory flexibility analysis when it promulgates a final rule after being required to publish a general notice of proposed rulemaking. As discussed previously, the agencies have decided to adopt, without changes, revisions to the capital and LCR rules made under the interim final rules. There was no general notice of proposed rulemaking associated with the interim final rules or this final rule. Accordingly, the agencies have concluded that the RFA's requirements relating to initial and final regulatory flexibility analyses do not apply to the promulgation of this final rule.
D.
Pursuant to section 302(a) of the
E. Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act[24] requires the Federal banking agencies to use "plain language" in all proposed and final rules published after
F. OCC Unfunded Mandates Reform Act of 1995
As a general matter, the Unfunded Mandates Act of 1995 (UMRA), 2 U.S.C.
Authority and Issuance
For the reasons set forth in the joint SUPPLEMENTARY INFORMATION section, the interim final rules, which were published at 85 FR 16232, 85 FR 20387, and 85 FR 26835 on
Acting Comptroller of the Currency.
By order of the
Secretary of the Board.
By order of the Board of Directors.
Dated at
Assistant Executive Secretary.
Footnotes
1. 12 U.S.C. 343(3).
2. The Paycheck Protection Program Liquidity Facility was previously known as the Paycheck Protection Program Lending Facility.
3.
4. The maturity date of the loan made under the PPPLF will be accelerated if the underlying PPP covered loan goes into default and the eligible borrower sells the PPP covered loan to the
5. Banking organizations subject to the capital rule include national banks, state member banks, state nonmember banks, savings associations, and top-tier bank holding companies and savings and loan holding companies domiciled in
6. See 12 CFR part 50 (OCC); 12 CFR part 249 (Board); and 12 CFR part 329 (FDIC).
7. 85 FR 16232 (
8. 85 FR 20387 (
9. 85 FR 26835 (
10. The applicability of the LCR rule is described in 12 CFR 50.1 (OCC); 12 CFR 249.1 (Board); and 12 CFR 329.1 (FDIC).
11. See 12 CFR 50.32 and 50.33 (OCC); 12 CFR 249.32 and 249.33 (Board); and 12 CFR 329.32 and 329.33 (FDIC). Section __.30 of the LCR rule also requires a covered company, as applicable, to include in its total net cash outflow amount a maturity mismatch add-on, which is calculated as the difference (if greater than zero) between the covered company's largest net cumulative maturity outflow amount for any of the 30 calendar days following the calculation date and the net day 30 cumulative maturity outflow amount. See 12 CFR 50.30 (OCC); 12 CFR 249.30 (Board); and 12 CFR 329.30 (FDIC).
12. See 12 CFR 50.34 (OCC); 12 CFR 249.34 (Board); and 12 CFR 329.34 (FDIC). Section __.34 does not apply to the extent the covered company secures Covered Federal Reserve Facility Funding with securities, debt obligations, or other instruments issued by the covered company or its consolidated entity.
13. Assets acquired as part of the MMLF and PPP covered loans pledged to the PPPLF would continue to be included in a bank's measure of total consolidated assets, including for purposes of determining whether a banking organization is a qualifying community banking organization.
14. 5 U.S.C.
15. 5 U.S.C. 801(a)(3).
16. 5 U.S.C. 804(2).
17. The Board published a separate
18. See 85 FR 44361 (
19. An SLHC must file one or more of the FR
20. Under certain circumstances described in the FR Y-9C's General Instructions, HCs with assets under
21. A top-tier HC may submit a separate FR Y-9LP on behalf of each of its lower-tier HCs.
22. 12 U.S.C. 4802(a).
23. 12 U.S.C. 4802.
24. 12 U.S.C. 4809.
25. See 2 U.S.C. 1532(a).
[FR Doc. 2020-21894 Filed 10-27-20;
BILLING CODE 4810-33-6210-01-6714-01-P
The document is published in the
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