44451Federal Register / Vol. 83, No. 170 / Friday, August 31, 2018 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 50
[Docket ID OCC–2018–0013]
RIN 1557–AE36
FEDERAL RESERVE SYSTEM
12 CFR Part 249
[Docket No. R–1616]
RIN 7100–AF10
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 329
RIN 3064–AE77
Liquidity Coverage Ratio Rule:
Treatment of Certain Municipal
Obligations as High-Quality Liquid
Assets
AGENCY: Office of the Comptroller of the
Currency (OCC), Treasury; Board of
Governors of the Federal Reserve
System (Board); and Federal Deposit
Insurance Corporation (FDIC).
ACTION: Interim final rule with request
for comment.
SUMMARY: The OCC, the Board, and the
FDIC (collectively, the agencies) are
jointly issuing and inviting comment on
an interim final rule that amends the
agencies’ liquidity coverage ratio (LCR)
rule to treat liquid and readily-
marketable, investment grade municipal
obligations as high-quality liquid assets
(HQLA). Section 403 of the Economic
Growth, Regulatory Relief, and
Consumer Protection Act amends
section 18 of the Federal Deposit
Insurance Act and requires the agencies,
for purposes of their LCR rule and any
other regulation that incorporates a
definition of the term ‘‘high-quality
liquid asset’’ or another substantially
similar term, to treat a municipal
obligation as HQLA (that is a level 2B
liquid asset) if that obligation is, as of
the LCR calculation date, ‘‘liquid and
readily-marketable’’ and ‘‘investment
grade.’’
DATES: The interim final rule is effective
on August 31, 2018. Comments on the
interim final rule must be received by
October 1, 2018.
ADDRESSES: Comments should be
directed to:
OCC: Commenters are encouraged to
submit comments through the Federal
eRulemaking Portal or email, if possible.
Please use the title ‘‘Liquidity Coverage
Ratio Rule: Treatment of Certain
Municipal Obligations as High-Quality
Liquid Assets’’ to facilitate the
organization and distribution of the
comments. You may submit comments
by any of the following methods:
• Federal eRulemaking Portal—
‘‘Regulations.gov’’: Go to
www.regulations.gov. Enter ‘‘Docket ID
OCC–2018–0013’’ in the Search box and
click ‘‘Search.’’ Click on ‘‘Comment
Now’’ to submit public comments. Click
on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for submitting
public comments.
• Email: regs.comments@
occ.treas.gov.
• Mail: Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, 400 7th
Street SW, Suite 3E–218, Washington,
DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW, suite 3E–218, Washington,
DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2018–0013’’ in your comment.
In general, OCC will enter all comments
received into the docket and publish the
comments on the Regulations.gov
website without change, including any
business or personal information that
you provide such as name and address
information, email addresses, or phone
numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
include any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically:
Go to www.regulations.gov. Enter
‘‘Docket ID OCC–2018–0013’’ in the
Search box and click ‘‘Search.’’ Click on
‘‘Open Docket Folder’’ on the right side
of the screen. Comments and supporting
materials can be viewed and filtered by
clicking on ‘‘View all documents and
comments in this docket’’ and then
using the filtering tools on the left side
of the screen. Click on the ‘‘Help’’ tab
on the Regulations.gov home page to get
information on using Regulations.gov.
The docket may be viewed after the
close of the comment period in the same
manner as during the comment period.
• Viewing Comments Personally: You
may personally inspect comments at the
OCC, 400 7th Street SW, Washington,
DC 20219. For security reasons, the OCC
requires that visitors make an
appointment to inspect comments. You
may do so by calling (202) 649–6700 or,
for persons who are deaf or hearing-
impaired, TTY, (202) 649–5597. Upon
arrival, visitors will be required to
present valid government-issued photo
identification and submit to security
screening in order to inspect comments.
Board: When submitting comments,
please consider submitting your
comments by email or fax because paper
mail in the Washington, DC area and at
the Board may be subject to delay. You
may submit comments, identified by
Docket No. R–1616 and RIN 7100–AF10,
by any of the following methods:
• Agency website: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Email: regs.comments@
federalreserve.gov. Include docket and
RIN numbers in the subject line of the
message.
• FAX: (202) 452–3819 or (202) 452–
3102.
• Mail: Ann E. Misback, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551.
Instructions: All public comments
will be made available on the Board’s
website at http://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons or
to remove personally identifiable
information at the commenter’s request.
Accordingly, comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed electronically or in
paper in Room 3515, 1801 K Street NW
(between 18th and 19th Streets NW),
Washington, DC 20006 between 9:00
a.m. and 5:00 p.m. on weekdays. For
security reasons, the Board requires that
visitors make an appointment to inspect
comments. You may do so by calling
(202) 452–3684. Upon arrival, visitors
will be required to present valid
government-issued photo identification
and to submit to security screening in
order to inspect and photocopy
comments.
FDIC: You may submit comments,
identified by FDIC RIN 3064–AE77, by
any of the following methods:
• Agency website: http://
www.FDIC.gov/regulations/laws/
federal/.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
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daltland on DSKBBV9HB2PROD with RULES
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 50
[Docket ID OCC–2018–0013]
RIN 1557–AE36
FEDERAL RESERVE SYSTEM
12 CFR Part 249
[Docket No. R–1616]
RIN 7100–AF10
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 329
RIN 3064–AE77
Liquidity Coverage Ratio Rule:
Treatment of Certain Municipal
Obligations as High-Quality Liquid
Assets
AGENCY: Office of the Comptroller of the
Currency (OCC), Treasury; Board of
Governors of the Federal Reserve
System (Board); and Federal Deposit
Insurance Corporation (FDIC).
ACTION: Interim final rule with request
for comment.
SUMMARY: The OCC, the Board, and the
FDIC (collectively, the agencies) are
jointly issuing and inviting comment on
an interim final rule that amends the
agencies’ liquidity coverage ratio (LCR)
rule to treat liquid and readily-
marketable, investment grade municipal
obligations as high-quality liquid assets
(HQLA). Section 403 of the Economic
Growth, Regulatory Relief, and
Consumer Protection Act amends
section 18 of the Federal Deposit
Insurance Act and requires the agencies,
for purposes of their LCR rule and any
other regulation that incorporates a
definition of the term ‘‘high-quality
liquid asset’’ or another substantially
similar term, to treat a municipal
obligation as HQLA (that is a level 2B
liquid asset) if that obligation is, as of
the LCR calculation date, ‘‘liquid and
readily-marketable’’ and ‘‘investment
grade.’’
DATES: The interim final rule is effective
on August 31, 2018. Comments on the
interim final rule must be received by
October 1, 2018.
ADDRESSES: Comments should be
directed to:
OCC: Commenters are encouraged to
submit comments through the Federal
eRulemaking Portal or email, if possible.
Please use the title ‘‘Liquidity Coverage
Ratio Rule: Treatment of Certain
Municipal Obligations as High-Quality
Liquid Assets’’ to facilitate the
organization and distribution of the
comments. You may submit comments
by any of the following methods:
• Federal eRulemaking Portal—
‘‘Regulations.gov’’: Go to
www.regulations.gov. Enter ‘‘Docket ID
OCC–2018–0013’’ in the Search box and
click ‘‘Search.’’ Click on ‘‘Comment
Now’’ to submit public comments. Click
on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for submitting
public comments.
• Email: regs.comments@
occ.treas.gov.
• Mail: Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, 400 7th
Street SW, Suite 3E–218, Washington,
DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW, suite 3E–218, Washington,
DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2018–0013’’ in your comment.
In general, OCC will enter all comments
received into the docket and publish the
comments on the Regulations.gov
website without change, including any
business or personal information that
you provide such as name and address
information, email addresses, or phone
numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
include any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically:
Go to www.regulations.gov. Enter
‘‘Docket ID OCC–2018–0013’’ in the
Search box and click ‘‘Search.’’ Click on
‘‘Open Docket Folder’’ on the right side
of the screen. Comments and supporting
materials can be viewed and filtered by
clicking on ‘‘View all documents and
comments in this docket’’ and then
using the filtering tools on the left side
of the screen. Click on the ‘‘Help’’ tab
on the Regulations.gov home page to get
information on using Regulations.gov.
The docket may be viewed after the
close of the comment period in the same
manner as during the comment period.
• Viewing Comments Personally: You
may personally inspect comments at the
OCC, 400 7th Street SW, Washington,
DC 20219. For security reasons, the OCC
requires that visitors make an
appointment to inspect comments. You
may do so by calling (202) 649–6700 or,
for persons who are deaf or hearing-
impaired, TTY, (202) 649–5597. Upon
arrival, visitors will be required to
present valid government-issued photo
identification and submit to security
screening in order to inspect comments.
Board: When submitting comments,
please consider submitting your
comments by email or fax because paper
mail in the Washington, DC area and at
the Board may be subject to delay. You
may submit comments, identified by
Docket No. R–1616 and RIN 7100–AF10,
by any of the following methods:
• Agency website: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Email: regs.comments@
federalreserve.gov. Include docket and
RIN numbers in the subject line of the
message.
• FAX: (202) 452–3819 or (202) 452–
3102.
• Mail: Ann E. Misback, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551.
Instructions: All public comments
will be made available on the Board’s
website at http://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons or
to remove personally identifiable
information at the commenter’s request.
Accordingly, comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed electronically or in
paper in Room 3515, 1801 K Street NW
(between 18th and 19th Streets NW),
Washington, DC 20006 between 9:00
a.m. and 5:00 p.m. on weekdays. For
security reasons, the Board requires that
visitors make an appointment to inspect
comments. You may do so by calling
(202) 452–3684. Upon arrival, visitors
will be required to present valid
government-issued photo identification
and to submit to security screening in
order to inspect and photocopy
comments.
FDIC: You may submit comments,
identified by FDIC RIN 3064–AE77, by
any of the following methods:
• Agency website: http://
www.FDIC.gov/regulations/laws/
federal/.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
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daltland on DSKBBV9HB2PROD with RULES
44452 Federal Register / Vol. 83, No. 170 / Friday, August 31, 2018 / Rules and Regulations
1 79 FR 61440 (October 10, 2014), codified at 12
CFR part 50 (OCC), 12 CFR part 249 (Board), and
12 CFR part 329 (FDIC).
2 Id.
3 See section 1 of the LCR rule.
4 The Board separately adopted a modified LCR
requirement for bank holding companies and
certain savings and loan holding companies that, in
each case, (A) have $50 billion or more in total
consolidated assets and (B) are not internationally
active (each, a modified LCR holding company).
Under the Board’s LCR rule, modified LCR holding
companies must maintain an amount of HQLA
equal to or greater than 70 percent of their projected
total net cash outflows on the last business day of
the applicable calendar month. 12 CFR 249 subpart
G. This interim final rule’s changes to the Board’s
LCR rule also apply to modified LCR holding
companies.
5 81 FR 21223 (April 11, 2016), codified at 12 CFR
part 249 (Board).
6 12 CFR 249.20(c)(2).
7 12 CFR 249.3.
8 This is demonstrated by (A) the market price of
the security or equivalent securities of the issuer
declining by no more than 20 percent during a 30
calendar-day period of significant stress or (B) the
market haircut demanded by counterparties to
secured lending and secured funding transactions
that are collateralized by the security or equivalent
securities of the issuer increasing by no more than
20 percentage points during a 30 calendar-day
period of significant stress. 12 CFR 249.20(c)(2).
9 Id.
10 12 CFR 249.21.
11 12 CFR 249.22(c).
12 Public Law 115–174, 132 Stat. 1296–1368
(2018).
13 12 U.S.C. 1828(aa).
Corporation, 550 17th Street NW,
Washington, DC 20429.
• Hand Delivery: Comments may be
hand-delivered to the guard station at
the rear of the 550 17th Street NW
building (located on F Street), on
business days between 7:00 a.m. and
5:00 p.m.
• Email: comments@FDIC.gov.
Instructions: Comments submitted
must include ‘‘FDIC’’ and ‘‘RIN 3064–
AE77.’’ Comments received will be
posted without change to http://
www.FDIC.gov/regulations/laws/
federal/, including any personal
information provided.
FOR FURTHER INFORMATION CONTACT:
OCC: Christopher McBride, Director,
James Weinberger, Technical Expert, or
Ang Middleton, Bank Examiner (Risk
Specialist), (202) 649–6360, Treasury &
Market Risk Policy; David Stankiewicz,
Special Counsel, Securities and
Corporate Practices Division, (202) 649–
5510; Henry Barkhausen, Counsel, or
Daniel Perez, Attorney, Legislative and
Regulatory Activities Division, (202)
649–5490; for persons who are deaf or
hearing-impaired, TTY, (202) 649–5597,
Office of the Comptroller of the
Currency, 400 7th Street SW,
Washington, DC 20219.
Board: Constance Horsley, Deputy
Associate Director, (202) 452–5239,
Peter Clifford, Manager, (202) 785–6057,
J. Kevin Littler, Senior Supervisory
Financial Analyst, (202) 475–6677, or
Christopher Powell, Supervisory
Financial Analyst, (202) 452–3442,
Division of Banking Supervision and
Regulation; Laurie Schaffer, Associate
General Counsel, (202) 452–2272,
Benjamin W. McDonough, Assistant
General Counsel, (202) 452–2036, Steve
Bowne, Senior Attorney, (202) 452–
3900, or Laura Bain, Senior Attorney,
(202) 736–5546, 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 (TDD), (202) 263–
4869, Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551.
FDIC: Bobby R. Bean, Associate
Director, (202) 898–6705, Michael E.
Spencer, Chief, (202) 898–7041, Eric W.
Schatten, Senior Policy Analyst, (202)
898–7063, Andrew D. Carayiannis,
Senior Policy Analyst, (202) 898–6692,
or Nana Ofori-Ansah, Capital Markets
Policy Analyst, (202) 898–3572, Capital
Markets Branch, Division of Risk
Management Supervision; Suzanne J.
Dawley, Counsel, (202) 898–6509
(sudawley@fdic.gov), Andrew B.
Williams, II, Counsel, (202) 898–3591,
or Alexander S. Bonander, Attorney
(202) 898–3621, Supervision and
Corporate Operations Branch, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429. For the hearing
impaired only, Telecommunication
Device for the Deaf (TDD), (800) 925–
4618.
SUPPLEMENTARY INFORMATION:
I. Background
The Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC) (collectively, the
agencies) adopted the liquidity coverage
ratio (LCR) rule 1 in 2014. The LCR rule
established a quantitative liquidity
requirement that is designed to promote
the short-term resilience of the liquidity
risk profile of large and internationally
active banking organizations. The intent
of the agencies in issuing the LCR rule
was to improve the banking sector’s
ability to absorb shocks arising from
financial and economic stress and the
measurement and management of
liquidity risk.2 The LCR rule generally
applies to a bank holding company,
savings and loan holding company, or
depository institution if: (1) It has total
consolidated assets equal to $250 billion
or more; (2) it has total consolidated on-
balance sheet foreign exposure equal to
$10 billion or more; or (3) it is a
depository institution with total
consolidated assets equal to $10 billion
or more and is a consolidated subsidiary
of a firm that is subject to the LCR rule
(each, a covered company).3 Covered
companies generally must maintain an
amount of high-quality liquid assets
(HQLA) equal to or greater than their
projected total net cash outflows over a
prospective 30 calendar-day period.4
The LCR rule defines three categories of
HQLA—level 1, level 2A, and level 2B
liquid assets—and sets forth qualifying
criteria for HQLA and limitations for an
asset’s inclusion in the HQLA amount.
In 2016, the Board amended its LCR
rule to include certain U.S. municipal
securities as HQLA, subject to certain
limitations (2016 Amendments).5 To
qualify as level 2B liquid assets under
the 2016 Amendments, the U.S.
municipal securities must be general
obligation securities of public sector
entities (i.e., a state, local authority, or
other governmental subdivision below
the U.S. sovereign entity level).6 Under
the 2016 Amendments, a general
obligation is defined as a bond or
similar obligation that is backed by the
full faith and credit of a public sector
entity.7 To be treated as HQLA, the
general obligation securities also must:
(1) Be investment grade under 12 CFR
part 1 as of the calculation date; (2) be
issued or guaranteed by a public sector
entity whose obligations have a proven
record as a reliable source of liquidity
in repurchase or sales markets during
stressed market conditions; 8 and (3) not
be an obligation of a financial sector
entity or a financial sector entity’s
consolidated subsidiary, unless it is
only guaranteed by a financial sector
entity or its consolidated subsidiary and
otherwise eligible.9 The 2016
Amendments limited the inclusion of
general obligation securities in the
HQLA amount to 5 percent of the
covered company’s total HQLA
amount.10 The 2016 Amendments also
limited the inclusion of general
obligation securities of any single public
sector entity to two times the average
daily trading volume during the
previous four quarters of all general
obligation securities issued by that
public sector entity.11
The Economic Growth, Regulatory
Relief, and Consumer Protection Act
(EGRRCPA) was enacted on May 24,
2018.12 Section 403 of the EGRRCPA
amends section 18 of the Federal
Deposit Insurance Act 13 and requires
the agencies, for purposes of the LCR
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daltland on DSKBBV9HB2PROD with RULES
1 79 FR 61440 (October 10, 2014), codified at 12
CFR part 50 (OCC), 12 CFR part 249 (Board), and
12 CFR part 329 (FDIC).
2 Id.
3 See section 1 of the LCR rule.
4 The Board separately adopted a modified LCR
requirement for bank holding companies and
certain savings and loan holding companies that, in
each case, (A) have $50 billion or more in total
consolidated assets and (B) are not internationally
active (each, a modified LCR holding company).
Under the Board’s LCR rule, modified LCR holding
companies must maintain an amount of HQLA
equal to or greater than 70 percent of their projected
total net cash outflows on the last business day of
the applicable calendar month. 12 CFR 249 subpart
G. This interim final rule’s changes to the Board’s
LCR rule also apply to modified LCR holding
companies.
5 81 FR 21223 (April 11, 2016), codified at 12 CFR
part 249 (Board).
6 12 CFR 249.20(c)(2).
7 12 CFR 249.3.
8 This is demonstrated by (A) the market price of
the security or equivalent securities of the issuer
declining by no more than 20 percent during a 30
calendar-day period of significant stress or (B) the
market haircut demanded by counterparties to
secured lending and secured funding transactions
that are collateralized by the security or equivalent
securities of the issuer increasing by no more than
20 percentage points during a 30 calendar-day
period of significant stress. 12 CFR 249.20(c)(2).
9 Id.
10 12 CFR 249.21.
11 12 CFR 249.22(c).
12 Public Law 115–174, 132 Stat. 1296–1368
(2018).
13 12 U.S.C. 1828(aa).
Corporation, 550 17th Street NW,
Washington, DC 20429.
• Hand Delivery: Comments may be
hand-delivered to the guard station at
the rear of the 550 17th Street NW
building (located on F Street), on
business days between 7:00 a.m. and
5:00 p.m.
• Email: comments@FDIC.gov.
Instructions: Comments submitted
must include ‘‘FDIC’’ and ‘‘RIN 3064–
AE77.’’ Comments received will be
posted without change to http://
www.FDIC.gov/regulations/laws/
federal/, including any personal
information provided.
FOR FURTHER INFORMATION CONTACT:
OCC: Christopher McBride, Director,
James Weinberger, Technical Expert, or
Ang Middleton, Bank Examiner (Risk
Specialist), (202) 649–6360, Treasury &
Market Risk Policy; David Stankiewicz,
Special Counsel, Securities and
Corporate Practices Division, (202) 649–
5510; Henry Barkhausen, Counsel, or
Daniel Perez, Attorney, Legislative and
Regulatory Activities Division, (202)
649–5490; for persons who are deaf or
hearing-impaired, TTY, (202) 649–5597,
Office of the Comptroller of the
Currency, 400 7th Street SW,
Washington, DC 20219.
Board: Constance Horsley, Deputy
Associate Director, (202) 452–5239,
Peter Clifford, Manager, (202) 785–6057,
J. Kevin Littler, Senior Supervisory
Financial Analyst, (202) 475–6677, or
Christopher Powell, Supervisory
Financial Analyst, (202) 452–3442,
Division of Banking Supervision and
Regulation; Laurie Schaffer, Associate
General Counsel, (202) 452–2272,
Benjamin W. McDonough, Assistant
General Counsel, (202) 452–2036, Steve
Bowne, Senior Attorney, (202) 452–
3900, or Laura Bain, Senior Attorney,
(202) 736–5546, 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 (TDD), (202) 263–
4869, Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551.
FDIC: Bobby R. Bean, Associate
Director, (202) 898–6705, Michael E.
Spencer, Chief, (202) 898–7041, Eric W.
Schatten, Senior Policy Analyst, (202)
898–7063, Andrew D. Carayiannis,
Senior Policy Analyst, (202) 898–6692,
or Nana Ofori-Ansah, Capital Markets
Policy Analyst, (202) 898–3572, Capital
Markets Branch, Division of Risk
Management Supervision; Suzanne J.
Dawley, Counsel, (202) 898–6509
(sudawley@fdic.gov), Andrew B.
Williams, II, Counsel, (202) 898–3591,
or Alexander S. Bonander, Attorney
(202) 898–3621, Supervision and
Corporate Operations Branch, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429. For the hearing
impaired only, Telecommunication
Device for the Deaf (TDD), (800) 925–
4618.
SUPPLEMENTARY INFORMATION:
I. Background
The Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC) (collectively, the
agencies) adopted the liquidity coverage
ratio (LCR) rule 1 in 2014. The LCR rule
established a quantitative liquidity
requirement that is designed to promote
the short-term resilience of the liquidity
risk profile of large and internationally
active banking organizations. The intent
of the agencies in issuing the LCR rule
was to improve the banking sector’s
ability to absorb shocks arising from
financial and economic stress and the
measurement and management of
liquidity risk.2 The LCR rule generally
applies to a bank holding company,
savings and loan holding company, or
depository institution if: (1) It has total
consolidated assets equal to $250 billion
or more; (2) it has total consolidated on-
balance sheet foreign exposure equal to
$10 billion or more; or (3) it is a
depository institution with total
consolidated assets equal to $10 billion
or more and is a consolidated subsidiary
of a firm that is subject to the LCR rule
(each, a covered company).3 Covered
companies generally must maintain an
amount of high-quality liquid assets
(HQLA) equal to or greater than their
projected total net cash outflows over a
prospective 30 calendar-day period.4
The LCR rule defines three categories of
HQLA—level 1, level 2A, and level 2B
liquid assets—and sets forth qualifying
criteria for HQLA and limitations for an
asset’s inclusion in the HQLA amount.
In 2016, the Board amended its LCR
rule to include certain U.S. municipal
securities as HQLA, subject to certain
limitations (2016 Amendments).5 To
qualify as level 2B liquid assets under
the 2016 Amendments, the U.S.
municipal securities must be general
obligation securities of public sector
entities (i.e., a state, local authority, or
other governmental subdivision below
the U.S. sovereign entity level).6 Under
the 2016 Amendments, a general
obligation is defined as a bond or
similar obligation that is backed by the
full faith and credit of a public sector
entity.7 To be treated as HQLA, the
general obligation securities also must:
(1) Be investment grade under 12 CFR
part 1 as of the calculation date; (2) be
issued or guaranteed by a public sector
entity whose obligations have a proven
record as a reliable source of liquidity
in repurchase or sales markets during
stressed market conditions; 8 and (3) not
be an obligation of a financial sector
entity or a financial sector entity’s
consolidated subsidiary, unless it is
only guaranteed by a financial sector
entity or its consolidated subsidiary and
otherwise eligible.9 The 2016
Amendments limited the inclusion of
general obligation securities in the
HQLA amount to 5 percent of the
covered company’s total HQLA
amount.10 The 2016 Amendments also
limited the inclusion of general
obligation securities of any single public
sector entity to two times the average
daily trading volume during the
previous four quarters of all general
obligation securities issued by that
public sector entity.11
The Economic Growth, Regulatory
Relief, and Consumer Protection Act
(EGRRCPA) was enacted on May 24,
2018.12 Section 403 of the EGRRCPA
amends section 18 of the Federal
Deposit Insurance Act 13 and requires
the agencies, for purposes of the LCR
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