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Agencies adopt Covid-19 rules on regulatory capital and appraisals
Recently, the OCC, Federal Reserve Board, and FDIC (collectively, “the agencies”) adopted four interim final rules issued as a result of the Covid-19 pandemic as two final rules. Highlights of the rules include:
- Regulatory Capital. The agencies issued a final rule covering revisions to the regulatory capital rule and the liquidity coverage ratio (LCR) rule made under three interim final rules. The final rule, which adopts three of the interim final rules as final with no changes, (i) allows financial institutions to participate in the Money Market Mutual Fund Liquidity Facility (MMLF) and Paycheck Protection Program Lending Facility (PPPLF) by neutralizing the regulatory capital effects of participating in each of the programs (covered by InfoBytes here and here); and (ii) modifies the agencies’ LCR rule to support participation in the MMLF and the PPPLF (covered by InfoBytes here).
- Appraisals and Evaluations. The agencies adopted as final, with one revision, an interim final rule (covered by InfoBytes here) allowing regulated financial institutions to defer completion of appraisals and evaluations for certain residential and commercial real estate transactions, excluding those involving the acquisition, development, and construction of real estate. Financial institutions are allowed up to 120 days from the closing date to obtain the required appraisal or evaluation in order to expedite the liquidity needs of borrowers. The final rule is effective through December 31.
Regulators modify liquidity coverage rule for MMM and PPP participants
On May 5, the Federal Reserve Board, the OCC, and the FDIC announced an interim final rule that modifies the agencies’ Liquidity Coverage Ratio (LCR) rule to support participation in the Federal Reserve's Money Market Mutual Fund Liquidity Facility and the Paycheck Protection Program Liquidity Facility (previously covered by InfoBytes here and here). The LCR rule requires large banks to hold a certain amount of “high-quality liquid assets” in order to meet their short-term liquidity needs. The interim final rule modifies the agencies’ capital rules to neutralize the effects of participation. The rule is effective immediately and comments will be accepted within 30 days of publication in the Federal Register.
Fed provides FAQs for tailoring rules
On January 13, the Federal Reserve Board (Fed) issued SR 20-2, “Frequently Asked Questions on the Tailoring Rules” (FAQs) applicable to bank holding companies, savings and loan companies, U.S. intermediate holding companies with $100 billion or more in total assets, and certain depository institutions. In October, as previously covered by InfoBytes, the Fed and the OCC released a jointly developed framework that set out four categories to be used to classify these banking entities for the purposes of determining regulatory capital and liquidity requirements based on risk. The FAQs provide guidance on the tailoring rules, including answers to questions about Liquidity Coverage Ratio (LCR) requirements, recognition of Accumulated Other Comprehensive Income, compliance requirements for foreign banking organizations with less than $100 billion in U.S. assets, and the interpretation of “quarterly” in relation to stress testing frequency.
Fed to Require Public Disclosure of Big Liquidity Risk Metrics
On December 19, the Fed announced its approval of a rule requiring large banks to publicly disclose certain quantitative liquidity-risk metrics on a quarterly basis. As previously covered in InfoBytes, in September 2014, the federal banking agencies had adopted a rule requiring banks with assets of $50 billion or more to hold “high-quality liquid assets” (HQLA) in an amount equal to or greater than the bank’s net cash outflows during a 30-day stress period; the ratio of HQLA to net cash outflows is the bank’s “liquidity coverage ratio” (LCR). The Fed’s new rule requires large banks to disclose their LCRs, HQLA amounts by category, and certain other metrics, including projected “net stressed cash outflow” amounts and derivatives inflows and outflows. Compliance deadlines range from April 2017 through October 2018.