This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
Rules and Regulations Federal Register
4569
Vol. 85, No. 17
Monday, January 27, 2020
1 84 FR 18175 (April 30, 2019).
2 Public Law 115–174, 132 Stat. 1296 (2018),
section 402.
3 Id. at 402(b)(2).
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket ID OCC–2019–0001]
RIN 1557–AE60
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Docket ID R–1659]
RIN 7100–AF46
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 324
RIN 3064–AE81
Regulatory Capital Rule: Revisions to
the Supplementary Leverage Ratio To
Exclude Certain Central Bank Deposits
of Banking Organizations
Predominantly Engaged in Custody,
Safekeeping, and Asset Servicing
Activities
AGENCY: The Office of the Comptroller
of the Currency; the Board of Governors
of the Federal Reserve System; and the
Federal Deposit Insurance Corporation.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency, Board of Governors of
the Federal Reserve System, and Federal
Deposit Insurance Corporation are
issuing a final rule to implement section
402 of the Economic Growth, Regulatory
Relief, and Consumer Protection Act.
Section 402 directs these agencies to
amend the regulatory capital rule to
exclude from the supplementary
leverage ratio certain funds of banking
organizations deposited with central
banks if the banking organization is
predominantly engaged in custody,
safekeeping, and asset servicing
activities.
DATES: The rule is effective April 1,
2020.
FOR FURTHER INFORMATION CONTACT:
OCC: Venus Fan, Risk Expert, or
Guowei Zhang, Risk Expert, Capital and
Regulatory Policy, (202) 649–6370; or
Patricia Dalton, Director for Asset
Management (202) 649–6401; or Rima
Kundnani, Attorney, or Christopher
Rafferty, Attorney, Chief Counsel’s
Office, (202) 649–5490; the Office of the
Comptroller of the Currency, 400 7th
Street SW, Washington, DC 20219.
Board: Constance M. Horsley, Deputy
Associate Director, (202) 452–5239;
Teresa A. Scott, Manager, (202) 475–
6316; Donald Gabbai, Lead Financial
Institution Policy Analyst, (202) 452–
3358; Division of Supervision and
Regulation; or Benjamin W.
McDonough, Assistant General Counsel,
(202) 452–2036; Mark Buresh, Senior
Counsel, (202) 452–5270; Mary Watkins,
Senior Attorney, (202) 452–3722; 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,
(202) 263–4869.
FDIC: Benedetto Bosco, Chief, Capital
Policy Section, bbosco@fdic.gov; Noah
Cuttler, Senior Policy Analyst, ncuttler@
fdic.gov; Dushan Gorechan, Financial
Analyst, dgorechan@fdic.gov; Keith
Bergstresser, Capital Markets Policy
Analyst, kbergstresser@fdic.gov; or
regulatorycapital@fdic.gov; Capital
Markets Branch, Division of Risk
Management Supervision, (202) 898–
6888; Michael Phillips, Counsel,
mphillips@fdic.gov; Catherine Wood,
Counsel, cawood@fdic.gov; Supervision
Branch, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Overview of the Proposal
II. Background
A. The Supplementary Leverage Ratio
B. Fiduciary, Custody, Safekeeping, and
Asset Servicing Activities
III. Discussion of the Comments and Final
Rule
A. Scope of Applicability
1. Definition of Custodial Banking
Organizations
2. Assets Under Custody to Total Assets
Measure
3. Scope of Covered Entities
B. Mechanics of the Central Bank Deposit
Exclusion
C. Central Bank Deposit Exclusion Limit
D. Regulatory Reporting Requirements
IV. OCC Statement Regarding Standalone
Depository Institutions
V. Interaction of Section 402 With Other
Rules
A. Total Loss-Absorbing Capacity
B. The Enhanced Supplementary Leverage
Ratio and Other Comments on the
Proposal
VI. Impact Analysis
VII. Regulatory Analysis
A. Paperwork Reduction Act
B. Regulatory Flexibility Act Analysis
C. Plain Language
D. Riegle Community Development and
Regulatory Improvement Act of 1994
E. OCC Unfunded Mandates Reform Act of
1995 Determination
F. Congressional Review Act
I. Overview of the Proposal
In April 2019, the Office of the
Comptroller of the Currency (OCC),
Board of Governors of the Federal
Reserve System (Board), and Federal
Deposit Insurance Corporation (FDIC)
(collectively, the agencies) published a
notice of proposed rulemaking
(proposal) 1 to implement section 402 of
the Economic Growth, Regulatory
Relief, and Consumer Protection Act
(section 402).2
Section 402 requires the agencies to
amend the supplementary leverage
ratio, a measure of capital adequacy that
applies to large banking organizations.
Under section 402, the supplementary
leverage ratio must not take into account
funds of a custodial bank that are
deposited with certain central banks,
provided that any amount that exceeds
the value of deposits of the custodial
bank that are linked to fiduciary or
custodial and safekeeping accounts
must be taken into account when
calculating the supplementary leverage
ratio as applied to the custodial bank.3
Under section 402, central bank
deposits that qualify for the exclusion
include deposits of custodial banks
placed with (1) the Federal Reserve
System, (2) the European Central Bank,
and (3) central banks of member
countries of the Organisation for
Economic Co-operation and
VerDate Sep<11>2014 16:03 Jan 24, 2020 Jkt 250001 PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 E:\FR\FM\27JAR1.SGM 27JAR1
khammond on DSKJM1Z7X2PROD with RULES
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
Rules and Regulations Federal Register
4569
Vol. 85, No. 17
Monday, January 27, 2020
1 84 FR 18175 (April 30, 2019).
2 Public Law 115–174, 132 Stat. 1296 (2018),
section 402.
3 Id. at 402(b)(2).
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket ID OCC–2019–0001]
RIN 1557–AE60
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Docket ID R–1659]
RIN 7100–AF46
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 324
RIN 3064–AE81
Regulatory Capital Rule: Revisions to
the Supplementary Leverage Ratio To
Exclude Certain Central Bank Deposits
of Banking Organizations
Predominantly Engaged in Custody,
Safekeeping, and Asset Servicing
Activities
AGENCY: The Office of the Comptroller
of the Currency; the Board of Governors
of the Federal Reserve System; and the
Federal Deposit Insurance Corporation.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency, Board of Governors of
the Federal Reserve System, and Federal
Deposit Insurance Corporation are
issuing a final rule to implement section
402 of the Economic Growth, Regulatory
Relief, and Consumer Protection Act.
Section 402 directs these agencies to
amend the regulatory capital rule to
exclude from the supplementary
leverage ratio certain funds of banking
organizations deposited with central
banks if the banking organization is
predominantly engaged in custody,
safekeeping, and asset servicing
activities.
DATES: The rule is effective April 1,
2020.
FOR FURTHER INFORMATION CONTACT:
OCC: Venus Fan, Risk Expert, or
Guowei Zhang, Risk Expert, Capital and
Regulatory Policy, (202) 649–6370; or
Patricia Dalton, Director for Asset
Management (202) 649–6401; or Rima
Kundnani, Attorney, or Christopher
Rafferty, Attorney, Chief Counsel’s
Office, (202) 649–5490; the Office of the
Comptroller of the Currency, 400 7th
Street SW, Washington, DC 20219.
Board: Constance M. Horsley, Deputy
Associate Director, (202) 452–5239;
Teresa A. Scott, Manager, (202) 475–
6316; Donald Gabbai, Lead Financial
Institution Policy Analyst, (202) 452–
3358; Division of Supervision and
Regulation; or Benjamin W.
McDonough, Assistant General Counsel,
(202) 452–2036; Mark Buresh, Senior
Counsel, (202) 452–5270; Mary Watkins,
Senior Attorney, (202) 452–3722; 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,
(202) 263–4869.
FDIC: Benedetto Bosco, Chief, Capital
Policy Section, bbosco@fdic.gov; Noah
Cuttler, Senior Policy Analyst, ncuttler@
fdic.gov; Dushan Gorechan, Financial
Analyst, dgorechan@fdic.gov; Keith
Bergstresser, Capital Markets Policy
Analyst, kbergstresser@fdic.gov; or
regulatorycapital@fdic.gov; Capital
Markets Branch, Division of Risk
Management Supervision, (202) 898–
6888; Michael Phillips, Counsel,
mphillips@fdic.gov; Catherine Wood,
Counsel, cawood@fdic.gov; Supervision
Branch, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Overview of the Proposal
II. Background
A. The Supplementary Leverage Ratio
B. Fiduciary, Custody, Safekeeping, and
Asset Servicing Activities
III. Discussion of the Comments and Final
Rule
A. Scope of Applicability
1. Definition of Custodial Banking
Organizations
2. Assets Under Custody to Total Assets
Measure
3. Scope of Covered Entities
B. Mechanics of the Central Bank Deposit
Exclusion
C. Central Bank Deposit Exclusion Limit
D. Regulatory Reporting Requirements
IV. OCC Statement Regarding Standalone
Depository Institutions
V. Interaction of Section 402 With Other
Rules
A. Total Loss-Absorbing Capacity
B. The Enhanced Supplementary Leverage
Ratio and Other Comments on the
Proposal
VI. Impact Analysis
VII. Regulatory Analysis
A. Paperwork Reduction Act
B. Regulatory Flexibility Act Analysis
C. Plain Language
D. Riegle Community Development and
Regulatory Improvement Act of 1994
E. OCC Unfunded Mandates Reform Act of
1995 Determination
F. Congressional Review Act
I. Overview of the Proposal
In April 2019, the Office of the
Comptroller of the Currency (OCC),
Board of Governors of the Federal
Reserve System (Board), and Federal
Deposit Insurance Corporation (FDIC)
(collectively, the agencies) published a
notice of proposed rulemaking
(proposal) 1 to implement section 402 of
the Economic Growth, Regulatory
Relief, and Consumer Protection Act
(section 402).2
Section 402 requires the agencies to
amend the supplementary leverage
ratio, a measure of capital adequacy that
applies to large banking organizations.
Under section 402, the supplementary
leverage ratio must not take into account
funds of a custodial bank that are
deposited with certain central banks,
provided that any amount that exceeds
the value of deposits of the custodial
bank that are linked to fiduciary or
custodial and safekeeping accounts
must be taken into account when
calculating the supplementary leverage
ratio as applied to the custodial bank.3
Under section 402, central bank
deposits that qualify for the exclusion
include deposits of custodial banks
placed with (1) the Federal Reserve
System, (2) the European Central Bank,
and (3) central banks of member
countries of the Organisation for
Economic Co-operation and
VerDate Sep<11>2014 16:03 Jan 24, 2020 Jkt 250001 PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 E:\FR\FM\27JAR1.SGM 27JAR1
khammond on DSKJM1Z7X2PROD with RULES
4570 Federal Register / Vol. 85, No. 17 / Monday, January 27, 2020 / Rules and Regulations
4 The OECD is an intergovernmental organization
founded in 1961 to stimulate economic progress
and global trade. A list of OECD member countries
is available on the OECD’s website, www.oecd.org.
5 Public Law 115–174, section 402(a).
6 Id., at 402(b).
7 12 CFR 3.10(a)(5) and (c)(4) (OCC); 12 CFR
217.10(a)(5) and (c)(4) (Board); 12 CFR 324.10(a)(5)
and (c)(4) (FDIC).
8 The agencies recently adopted final rules
tailoring the application of capital requirements,
including the supplementary leverage ratio, based
on a banking organization’s risk profile (tailoring
rules). See 84 FR 59230 (November 1, 2019),
available at https://www.federalreserve.gov/about
thefed/boardmeetings/20191010open.htm. Under
the tailoring rules, the minimum supplementary
leverage ratio requirement applies to banking
organizations subject to Category I, II, and III
standards. The tailoring rules will be effective
December 31, 2019. Until the tailoring rules are
effective, the supplementary leverage ratio applies
to advanced approaches banking organizations.
9 See 79 FR 24528 (May 1, 2014). Under OCC and
FDIC rules, a depository institution that is a
subsidiary of a bank holding company with more
than $700 billion in total consolidated assets or
more than $10 trillion in assets under custody is
subject to the eSLR standards. 12 CFR 6.4(c) (OCC);
12 CFR 324.403(b) (FDIC). Under the Board’s rule,
a bank holding company that is a U.S. GSIB is
subject to the eSLR standards. See 12 CFR
217.11(d); 12 CFR part 217, subpart H.
10 See OCC Comptrollers Handbook, Custody
Services (January 2002).
Development (OECD),4 if the member
country has been assigned a zero
percent risk weight under the agencies’
regulatory capital rule (capital rule) and
the sovereign debt of such member
country is not in default or has not been
in default during the previous five
years.5 Section 402 defines a custodial
bank as ‘‘any depository institution
holding company predominantly
engaged in custody, safekeeping, and
asset servicing activities, including any
insured depository institution
subsidiary of such a holding
company.’’ 6
The proposal would have
implemented section 402 by defining
the scope of banking organizations
considered to be predominantly engaged
in custody, safekeeping, and asset
servicing activities and by providing the
standard by which such banking
organizations would determine the
amount of central bank deposits that
could be excluded from total leverage
exposure, which is the denominator of
the supplementary leverage ratio in the
capital rule.
Under the proposal, a depository
institution holding company with a
ratio of assets under custody (AUC)-to-
total assets of at least 30:1 would have
been considered predominantly engaged
in custody, safekeeping, and asset
servicing activities. Such a banking
organization would have been termed a
‘‘custodial banking organization.’’ A
custodial banking organization would
have excluded from the supplementary
leverage ratio deposits placed at a
‘‘qualifying central bank,’’ which would
have included a Federal Reserve Bank,
the European Central Bank, or any
central bank of a member country of the
OECD if the member country meets
certain criteria. The amount of central
bank deposits that could have been
excluded from total leverage exposure
would have been limited by the amount
of deposit liabilities of the custodial
banking organization that are linked to
fiduciary or custody and safekeeping
accounts.
The agencies collectively received six
comment letters on the proposal (from
banking organizations and other
interested parties). Some commenters
were supportive of the agencies’
proposal to implement section 402.
Other commenters acknowledged that
the agencies are required to implement
section 402 but raised various concerns
regarding the potential effect that
implementation of section 402 would
have on other aspects of the banking
sector.
The agencies have considered all the
comments received on the proposal. As
described in more detail below, the
agencies are adopting the proposal as a
final rule without modification. The
agencies are required under section 402
to amend the capital rule to exclude
from the supplementary leverage ratio
certain central bank deposits of banking
organizations predominantly engaged in
custody, safekeeping, and asset
servicing activities. The agencies’
adoption of the proposal fulfills this
statutory requirement. The final rule
becomes effective on April 1, 2020.
II. Background
A. The Supplementary Leverage Ratio
The supplementary leverage ratio
measures tier 1 capital relative to total
leverage exposure, which includes on-
balance sheet assets (including deposits
at central banks) and certain off-balance
sheet exposures.7 A minimum
supplementary leverage ratio of 3
percent applies to certain banking
organizations and their depository
institution subsidiaries.8 In addition,
banking organizations that will be
subject to Category I standards, which
are the global systemically important
bank holding companies (U.S. GSIBs),
as well as their depository institution
subsidiaries, are subject to enhanced
supplementary leverage ratio (eSLR)
standards. The eSLR standards require
each U.S. GSIB to maintain a
supplementary leverage ratio above 5
percent to avoid limitations on the
firm’s distributions and certain
discretionary bonus payments and also
require each of its insured depository
institutions to maintain a
supplementary leverage ratio of at least
6 percent to be deemed ‘‘well
capitalized’’ under the prompt
corrective action framework of each
agency.9
B. Fiduciary, Custody, Safekeeping, and
Asset Servicing Activities
Certain banking organizations engage
in fiduciary, custody, safekeeping, and
asset servicing activities. Custody,
safekeeping, and asset servicing
activities generally involve holding
securities or other assets on behalf of
clients, as well as activities such as
transaction settlement, income
processing, and related record keeping
and operational services. A banking
organization may also act as a fiduciary
by, for example, acting as trustee or
executor, or by having investment
discretion over the management of
client assets. Banking organizations
typically provide custody, safekeeping,
and asset servicing to their fiduciary
accounts. While many banking
organizations offer some or all of these
services, certain banking organizations
specialize in these activities and often
do not provide the same range or scale
of traditional commercial or retail
banking products as are provided by
other banking organizations.10
Fiduciary and custody clients often
maintain cash deposits at the banking
organization in connection with these
services. Clients typically maintain cash
positions consisting of funds awaiting
investment or distribution that are often
in the form of deposits placed in
banking organizations. These cash
deposits help facilitate the
administration of the custody account.
Under U.S. generally accepted
accounting principles (U.S. GAAP), cash
deposits at a banking organization are a
deposit liability and thus appear on the
banking organization’s balance sheet.
Cash deposits that are linked to
custody and fiduciary accounts at
banking organizations fluctuate
depending on the activities of the
banking organization’s custodial clients.
For example, cash deposit balances of
such banking organizations generally
increase during periods when clients
liquidate securities, such as during
times of stress. To assist in managing
these cash fluctuations, banking
organizations may maintain significant
cash deposits at central banks. Central
bank deposits can be used as an asset-
liability management strategy to
facilitate these banking organizations’
ability to support custodial clients’
cash-related needs. Under U.S. GAAP,
VerDate Sep<11>2014 16:03 Jan 24, 2020 Jkt 250001 PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 E:\FR\FM\27JAR1.SGM 27JAR1
khammond on DSKJM1Z7X2PROD with RULES
4 The OECD is an intergovernmental organization
founded in 1961 to stimulate economic progress
and global trade. A list of OECD member countries
is available on the OECD’s website, www.oecd.org.
5 Public Law 115–174, section 402(a).
6 Id., at 402(b).
7 12 CFR 3.10(a)(5) and (c)(4) (OCC); 12 CFR
217.10(a)(5) and (c)(4) (Board); 12 CFR 324.10(a)(5)
and (c)(4) (FDIC).
8 The agencies recently adopted final rules
tailoring the application of capital requirements,
including the supplementary leverage ratio, based
on a banking organization’s risk profile (tailoring
rules). See 84 FR 59230 (November 1, 2019),
available at https://www.federalreserve.gov/about
thefed/boardmeetings/20191010open.htm. Under
the tailoring rules, the minimum supplementary
leverage ratio requirement applies to banking
organizations subject to Category I, II, and III
standards. The tailoring rules will be effective
December 31, 2019. Until the tailoring rules are
effective, the supplementary leverage ratio applies
to advanced approaches banking organizations.
9 See 79 FR 24528 (May 1, 2014). Under OCC and
FDIC rules, a depository institution that is a
subsidiary of a bank holding company with more
than $700 billion in total consolidated assets or
more than $10 trillion in assets under custody is
subject to the eSLR standards. 12 CFR 6.4(c) (OCC);
12 CFR 324.403(b) (FDIC). Under the Board’s rule,
a bank holding company that is a U.S. GSIB is
subject to the eSLR standards. See 12 CFR
217.11(d); 12 CFR part 217, subpart H.
10 See OCC Comptrollers Handbook, Custody
Services (January 2002).
Development (OECD),4 if the member
country has been assigned a zero
percent risk weight under the agencies’
regulatory capital rule (capital rule) and
the sovereign debt of such member
country is not in default or has not been
in default during the previous five
years.5 Section 402 defines a custodial
bank as ‘‘any depository institution
holding company predominantly
engaged in custody, safekeeping, and
asset servicing activities, including any
insured depository institution
subsidiary of such a holding
company.’’ 6
The proposal would have
implemented section 402 by defining
the scope of banking organizations
considered to be predominantly engaged
in custody, safekeeping, and asset
servicing activities and by providing the
standard by which such banking
organizations would determine the
amount of central bank deposits that
could be excluded from total leverage
exposure, which is the denominator of
the supplementary leverage ratio in the
capital rule.
Under the proposal, a depository
institution holding company with a
ratio of assets under custody (AUC)-to-
total assets of at least 30:1 would have
been considered predominantly engaged
in custody, safekeeping, and asset
servicing activities. Such a banking
organization would have been termed a
‘‘custodial banking organization.’’ A
custodial banking organization would
have excluded from the supplementary
leverage ratio deposits placed at a
‘‘qualifying central bank,’’ which would
have included a Federal Reserve Bank,
the European Central Bank, or any
central bank of a member country of the
OECD if the member country meets
certain criteria. The amount of central
bank deposits that could have been
excluded from total leverage exposure
would have been limited by the amount
of deposit liabilities of the custodial
banking organization that are linked to
fiduciary or custody and safekeeping
accounts.
The agencies collectively received six
comment letters on the proposal (from
banking organizations and other
interested parties). Some commenters
were supportive of the agencies’
proposal to implement section 402.
Other commenters acknowledged that
the agencies are required to implement
section 402 but raised various concerns
regarding the potential effect that
implementation of section 402 would
have on other aspects of the banking
sector.
The agencies have considered all the
comments received on the proposal. As
described in more detail below, the
agencies are adopting the proposal as a
final rule without modification. The
agencies are required under section 402
to amend the capital rule to exclude
from the supplementary leverage ratio
certain central bank deposits of banking
organizations predominantly engaged in
custody, safekeeping, and asset
servicing activities. The agencies’
adoption of the proposal fulfills this
statutory requirement. The final rule
becomes effective on April 1, 2020.
II. Background
A. The Supplementary Leverage Ratio
The supplementary leverage ratio
measures tier 1 capital relative to total
leverage exposure, which includes on-
balance sheet assets (including deposits
at central banks) and certain off-balance
sheet exposures.7 A minimum
supplementary leverage ratio of 3
percent applies to certain banking
organizations and their depository
institution subsidiaries.8 In addition,
banking organizations that will be
subject to Category I standards, which
are the global systemically important
bank holding companies (U.S. GSIBs),
as well as their depository institution
subsidiaries, are subject to enhanced
supplementary leverage ratio (eSLR)
standards. The eSLR standards require
each U.S. GSIB to maintain a
supplementary leverage ratio above 5
percent to avoid limitations on the
firm’s distributions and certain
discretionary bonus payments and also
require each of its insured depository
institutions to maintain a
supplementary leverage ratio of at least
6 percent to be deemed ‘‘well
capitalized’’ under the prompt
corrective action framework of each
agency.9
B. Fiduciary, Custody, Safekeeping, and
Asset Servicing Activities
Certain banking organizations engage
in fiduciary, custody, safekeeping, and
asset servicing activities. Custody,
safekeeping, and asset servicing
activities generally involve holding
securities or other assets on behalf of
clients, as well as activities such as
transaction settlement, income
processing, and related record keeping
and operational services. A banking
organization may also act as a fiduciary
by, for example, acting as trustee or
executor, or by having investment
discretion over the management of
client assets. Banking organizations
typically provide custody, safekeeping,
and asset servicing to their fiduciary
accounts. While many banking
organizations offer some or all of these
services, certain banking organizations
specialize in these activities and often
do not provide the same range or scale
of traditional commercial or retail
banking products as are provided by
other banking organizations.10
Fiduciary and custody clients often
maintain cash deposits at the banking
organization in connection with these
services. Clients typically maintain cash
positions consisting of funds awaiting
investment or distribution that are often
in the form of deposits placed in
banking organizations. These cash
deposits help facilitate the
administration of the custody account.
Under U.S. generally accepted
accounting principles (U.S. GAAP), cash
deposits at a banking organization are a
deposit liability and thus appear on the
banking organization’s balance sheet.
Cash deposits that are linked to
custody and fiduciary accounts at
banking organizations fluctuate
depending on the activities of the
banking organization’s custodial clients.
For example, cash deposit balances of
such banking organizations generally
increase during periods when clients
liquidate securities, such as during
times of stress. To assist in managing
these cash fluctuations, banking
organizations may maintain significant
cash deposits at central banks. Central
bank deposits can be used as an asset-
liability management strategy to
facilitate these banking organizations’
ability to support custodial clients’
cash-related needs. Under U.S. GAAP,
VerDate Sep<11>2014 16:03 Jan 24, 2020 Jkt 250001 PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 E:\FR\FM\27JAR1.SGM 27JAR1
khammond on DSKJM1Z7X2PROD with RULES