Joint Release Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
For Immediate Release October 30, 2013
NR 2013-169
OCC and FDIC Propose Rule to Strengthen Liquidity Risk Management
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance
Corporation (FDIC) proposed a rule on Wednesday to strengthen the liquidity risk
management of large banks and savings associations.
The OCC and FDIC’s proposed liquidity rule is substantively the same as the proposal
approved by the Board of Governors of the Federal Reserve System on October 24,
2013. That proposal, which was developed collaboratively by the three agencies, is
applicable to banking organizations with $250 billion or more in total consolidated
assets; banking organizations with $10 billion or more in on-balance sheet foreign
exposure; systemically important, non-bank financial institutions that do not have
substantial insurance subsidiaries or substantial insurance operations; and bank and
savings association subsidiaries thereof that have total consolidated assets of $10
billion or more (covered institutions). The proposed rule does not apply to community
banks.
Liquidity generally is a measure of how much cash or cash-equivalents and highly
marketable assets a company has on hand to meet its obligations. Under the proposed
rule, covered institutions would be required to maintain a standard level of high-quality
liquid assets such as central bank reserves, government and Government Sponsored
Enterprise securities, and corporate debt securities that can be converted easily and
quickly into cash. Under the proposal, a covered institution would be required to hold
such high-quality liquid assets on each business day in an amount equal to or greater
than its projected cash outflows less its projected cash inflows over a 30-day period.
The ratio of the firm's high-quality liquid assets to its projected net cash outflow is
specified as a "liquidity coverage ratio," or LCR, by the proposal.
"We learned during the financial crisis just how important liquidity is to the stability of the
system as a whole, as well as for individual banks," said Comptroller of the Currency
Thomas J. Curry. "A number of large institutions, including some with sufficient levels of
capital, encountered difficulties because they did not have adequate liquidity, and the
resulting stress on the international banking system resulted in extraordinary
government actions both globally and at home. The proposed liquidity rule will help
ensure that a bank’s cash, and not tax-payer money, is the first line of defense if it faces
a short-term funding stress."
"The recent financial crisis demonstrated that liquidity risk can have significant
consequences to large banking organizations with effects that spill over into the
Office of the Comptroller of the Currency
For Immediate Release October 30, 2013
NR 2013-169
OCC and FDIC Propose Rule to Strengthen Liquidity Risk Management
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance
Corporation (FDIC) proposed a rule on Wednesday to strengthen the liquidity risk
management of large banks and savings associations.
The OCC and FDIC’s proposed liquidity rule is substantively the same as the proposal
approved by the Board of Governors of the Federal Reserve System on October 24,
2013. That proposal, which was developed collaboratively by the three agencies, is
applicable to banking organizations with $250 billion or more in total consolidated
assets; banking organizations with $10 billion or more in on-balance sheet foreign
exposure; systemically important, non-bank financial institutions that do not have
substantial insurance subsidiaries or substantial insurance operations; and bank and
savings association subsidiaries thereof that have total consolidated assets of $10
billion or more (covered institutions). The proposed rule does not apply to community
banks.
Liquidity generally is a measure of how much cash or cash-equivalents and highly
marketable assets a company has on hand to meet its obligations. Under the proposed
rule, covered institutions would be required to maintain a standard level of high-quality
liquid assets such as central bank reserves, government and Government Sponsored
Enterprise securities, and corporate debt securities that can be converted easily and
quickly into cash. Under the proposal, a covered institution would be required to hold
such high-quality liquid assets on each business day in an amount equal to or greater
than its projected cash outflows less its projected cash inflows over a 30-day period.
The ratio of the firm's high-quality liquid assets to its projected net cash outflow is
specified as a "liquidity coverage ratio," or LCR, by the proposal.
"We learned during the financial crisis just how important liquidity is to the stability of the
system as a whole, as well as for individual banks," said Comptroller of the Currency
Thomas J. Curry. "A number of large institutions, including some with sufficient levels of
capital, encountered difficulties because they did not have adequate liquidity, and the
resulting stress on the international banking system resulted in extraordinary
government actions both globally and at home. The proposed liquidity rule will help
ensure that a bank’s cash, and not tax-payer money, is the first line of defense if it faces
a short-term funding stress."
"The recent financial crisis demonstrated that liquidity risk can have significant
consequences to large banking organizations with effects that spill over into the
financial system as a whole and the broader economy. The proposed rule acted on
today would establish first quantitative liquidity requirement applied by federal banking
agencies and is an important step in helping to bolster the resilience of large
internationally active banking organizations during periods of financial stress," said
FDIC Chairman Martin J. Gruenberg.
The liquidity proposal is based on a standard agreed to by the Basel Committee on
Banking Supervision. The proposed rule is generally consistent with the Basel
Committee's LCR standard, but is more stringent in some respects such as the range of
assets that will qualify as high-quality liquid assets and the assumed rate of outflows of
certain types of funding. In addition, the proposed rule’s transition period is shorter than
that included in the Basel framework. The accelerated transition period reflects a desire
to maintain the improved liquidity positions that U.S. institutions have established since
the financial crisis. Under the proposal, U.S. firms would begin the LCR transition period
on January 1, 2015, and would be required to be fully compliant by January 1, 2017.
Related Link:
Proposed Rule - PDF (PDF Help)
# # #
Media Contacts:
FDIC Andrew Gray 202-898-7192
OCC Bryan Hubbard 202-874-5770
FDIC: PR-96-2013
today would establish first quantitative liquidity requirement applied by federal banking
agencies and is an important step in helping to bolster the resilience of large
internationally active banking organizations during periods of financial stress," said
FDIC Chairman Martin J. Gruenberg.
The liquidity proposal is based on a standard agreed to by the Basel Committee on
Banking Supervision. The proposed rule is generally consistent with the Basel
Committee's LCR standard, but is more stringent in some respects such as the range of
assets that will qualify as high-quality liquid assets and the assumed rate of outflows of
certain types of funding. In addition, the proposed rule’s transition period is shorter than
that included in the Basel framework. The accelerated transition period reflects a desire
to maintain the improved liquidity positions that U.S. institutions have established since
the financial crisis. Under the proposal, U.S. firms would begin the LCR transition period
on January 1, 2015, and would be required to be fully compliant by January 1, 2017.
Related Link:
Proposed Rule - PDF (PDF Help)
# # #
Media Contacts:
FDIC Andrew Gray 202-898-7192
OCC Bryan Hubbard 202-874-5770
FDIC: PR-96-2013