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    US Agencies Seek Input on Liquidity Risk, Lev Lending & Digital Assets

    May 23, 2022

    The Office of the Comptroller of the Currency (OCC) published Federal Register notices seeking comments on the renewal of information collections titled “Funding and Liquidity Risk Management” and “Leveraged Lending.” Additionally, the Department of Commerce is requesting public input to inform the development of the framework for digital asset technologies.

    The information collection on funding and liquidity risk management relates to the policy on funding and liquidity risk management, which summarizes the principles of sound liquidity risk management, which the Federal banking agencies have issued in the past. The policy statement harmonizes the principles for sound liquidity risk management and supervision, issued by the Basel Committee on Banking Supervision. Section 20 of the policy statement states that liquidity risk reports should provide aggregate information with sufficient supporting detail to enable management to assess the sensitivity of the institution to changes in market conditions, its own financial performance, and other important risk factors. Institutions should report on the use and availability of government support, such as lending and guarantee programs, and implications on liquidity positions, particularly because these programs are generally temporary or reserved as a source for contingent funding. The policy statement describes supervisory expectations for all depository institutions, including banks, savings associations, and credit unions, with the number of respondents to this occasional information collection estimated at 1,069. The comment period for this information collections ends on June 22, 2022.

    The information collection on leveraged lending relates to the guidance from certain supervisory agencies to the financial institutions they supervise on how to evaluate and monitor credit risks in leveraged loans, understand the effect of changes in borrowers' enterprise values on credit portfolio quality, and assess the sensitivity of future credit losses to these changes in enterprise values. The final guidance recommends that financial institutions consider developing underwriting policies for leveraged lending, including stress-testing procedures for leveraged credits; risk management policies, including stress-testing procedures for pipeline exposures; and policies and procedures for incorporating the results of leveraged credit and pipeline stress tests into the firm's overall stress-testing framework. Although these are not legal requirements, the recommended policies qualify as “collections of information” as defined in the Paperwork Reduction Act of 1995. Respondents to this annual information collection are financial institutions with leveraged lending activities as defined in the guidance that may develop policies recommended in the guidance. The number of respondents for this information collection is estimated at 30 and the comment period for this information collections will on June 21, 2022.

    Notice on developing framework for digital asset technologies. In March 2022, the U.S. President Joseph R. Biden Jr. signed an Executive Order on ensuring responsible development of digital assets. The Order outlines U.S. policy objectives with respect to digital assets, including but not limited to protecting consumers, investors, and businesses; mitigating systemic financial risk; mitigating the illicit finance and national security risks posed by misuse of digital assets; and supporting technological advancements that promote responsible development and use of digital assets. Section 8(b)(iii) of the Executive Order directs the Secretary of Commerce to establish a framework for enhancing U.S. economic competitiveness in, and leveraging of, digital asset technologies. Through this notice, the Department of Commerce is requesting input from the public to inform work in developing the scope of the framework. The Department of Commerce is requesting input on any or all of the questions specified in the notice. The questions are related to competitiveness, comparisons to traditional financial services and financial inclusion considerations, and technological development. The comment period on this notice will end on July 05, 2022.

     

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    Keywords: Americas, US, Banking, Leveraged Lending, Liquidity Risk, Basel, Information Collection, Reporting, Credit Risk, Lending, Digital Assets, Regtech, Fintech, OCC, Department of Commerce

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