US Agencies Amend LCR Rule for Banks Participating in MMLF and PPPLF
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.
Related Links
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
Featured Experts

Scott Dietz
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.

Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives

Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.
Related Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.