US Agencies (FDIC, FED, and OCC) announced an interim final rule that modifies the liquidity coverage ratio (LCR) rule to support participation of banking organizations in the Money Market Mutual Fund Liquidity Facility (MMLF) and the Paycheck Protection Program Liquidity Facility (PPPLF). FED had established these two facilities to support the economy in light of the COVID-19 disruptions. This amendment impacts the information collection for the Complex Institution Liquidity Monitoring Report (FR 2052a). The interim rule will be effective on May 06, 2020 and comments on the rule will be accepted until June 05, 2020.
The interim final rule facilitates participation in these liquidity facilities by neutralizing the LCR impact associated with the non-recourse funding provided by these facilities. The LCR rule requires covered companies to calculate and maintain an amount of high-quality liquid assets (HQLA) sufficient to cover their total net cash outflows over a thirty-day stress period. A covered company’s LCR is the ratio of its HQLA amount (LCR numerator) divided by its total net cash outflows (LCR denominator). Absent the interim final rule, under the LCR rule, covered companies would be required to recognize outflows for MMLF and PPPLF loans with a remaining maturity of 30 days or less and inflows for certain assets securing the MMLF and PPPLF loans. As a result, a covered company’s participation in the MMLF or PPPLF could affect its total net cash outflows, which could potentially result in an inconsistent, unpredictable, and more volatile calculation of LCR requirements across covered companies.
The interim final rule adds a new definition and a new section to the LCR rule. The new definition “Covered Federal Reserve Facility Funding” means a non-recourse loan that is extended as part of the MMLF or PPPLF authorized by FED pursuant to section 13(3) of the Federal Reserve Act. The new section requires Covered Federal Reserve Facility Funding and the assets securing such funding to be excluded from the calculation of a covered company’s total net cash outflow amount as calculated under the LCR rule, notwithstanding any other section of the LCR rule. This new section excludes advances made by a Federal Reserve Bank under the MMLF or the PPPLF from being assigned an outflow rate and any collateral securing such an advance from being assigned an inflow rate. This new section 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.
FED has temporarily revised the reporting form and instructions for the FR 2052a to reflect the changes made in this interim final rule. FED is also inviting comment on a proposal to extend the FR 2052a for three years, with revisions. Comments will be accepted for 60 days after publication in the Federal Register. At the end of the comment period, the comments and recommendations received will be analyzed to determine the extent to which FED should modify the information collection.
Comment Due Date: June 05, 2020
Effective Date: May 06, 2020
Keywords: Americas, US, Banking, COVID-19, MMLF, Paycheck Protection Program, Liquidity Facility, LCR, FR 2052a, Reporting, Liquidity Risk, Basel, FED, US Agencies
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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