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Financial Services Law Insights and Observations


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  • FSB report outlines eight recommendations for bank liquidity preparedness

    On April 17, the Financial Stability Board (FSB) released a consultation report titled “Liquidity Preparedness for Margin and Collateral Calls,” which laid out eight policy recommendations intended to enhance the liquidity preparedness of nonbank market participants in certain markets. These policy recommendations came from several reviews by the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructures, and the International Organization of Securities Commissions analyzing recent incidents of liquidity stress. The eight recommendations comprised liquidity risk management, liquidity stress testing, and collateral management practices.

    The first three recommendations focused on liquidity risk management practices. The first recommendation would amend liquidity risk management and governance frameworks to protect against spikes in margin and collateral calls in liquidity risk management; the second recommendation would ensure liquidity needs by establishing liquidity risk appetites and a contingency funding plan; and the third recommendation outlined the need for regular reviews of liquidity risk frameworks.

    The next two recommendations were on liquidity stress testing and scenario design. The fourth recommendation set out the need for conducting liquidity stress tests with respect to margin and collateral calls to identify the sources of liquidity strains. The fifth called for stress tests to cover a range of “extreme but plausible” scenarios.

    The last three recommendations focused on collateral management practices. The sixth recommendation called for resilient and effective operational processes and collateral management practices; the seventh set out the need for sufficient cash and readily available diverse liquid assets and collateral arrangements; and the eighth called for active, transparent and regular interactions with counterparties and third-party service providers. The FSB will welcome comments on this report submitted before June 18.

    Bank Regulatory FSB Liquidity Liquidity Standards Of Interest to Non-US Persons

  • Federal Reserve Board files reports with Congress on newly established lending facilities

    Federal Issues

    On March 25, the Federal Reserve Board filed three reports to Congress pursuant to Section 13(3) of the Federal Reserve Act on the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, and the Money Market Mutual Fund Liquidity Facility. Each report provides Congress with details on the facilities, including the structure and basic terms of the facilities.  The announcement of the lending facilities was previously covered here.

    Federal Issues Covid-19 Federal Reserve Congress Liquidity Standards Mutual Fund

  • Massachusetts DOB instructs licensees on temporary branch closures

    State Issues

    On March 19, the Massachusetts Division of Banks issued guidance to licensees for temporary closures necessitated by Covid-19. Licensees are encouraged to provide alternative service options to customers when feasible and notify customers about closures and alternatives as soon as practicable. In addition, licensees should notify the Division of any closures, business disruptions or other significant Covid-19-related developments, including significant staff or liquidity shortages or issues with funding closed loans to consumers.

    State Issues State Regulators State Regulation Licensing Liquidity Standards Covid-19 Massachusetts

  • Kansas Office of the State Bank Commissioner temporarily closed

    State Issues

    On March 16, the Kansas Office of the State Bank Commissioner (OSBC) announced it would be closed until March 23 with staff working remotely. In addition, all OSBC on-site exams have been suspended at least until the end of March. The OSBC suggested visiting their website ( for additional information regarding temporary bank closures and relocations.

    State Issues Kansas State Regulators Examination Liquidity Standards Covid-19

  • New Hampshire regulator provides guidance on branch closures, annual meetings, and examinations

    State Issues

    On March 13, the New Hampshire Banking Department (NHBD) issued a memorandum to state-chartered banks, credit unions, and trust companies encouraging them to work constructively with customers experiencing difficulty due to Covid-19 and offering guidance on branch closures, annual meetings, examinations, and liquidity. Banks and credit unions do not need prior authorization to use only the drive-through portion of a branch or adjust normal business hours but must submit applications to the NHBD for branch closures in excess of 48 hours. If necessary, credit unions may conduct annual meetings via video or teleconference and both banks and credit unions may request adjustments to examination schedules or additional time to respond to consumer complaints. Finally, institutions are asked to closely monitor liquidity levels in the event of higher than normal consumer cash withdrawals and ensure sources of liquidity are readily available.

    State Issues State Regulators Covid-19 New Hampshire Credit Union Examination Liquidity Standards

  • Fed provides FAQs for tailoring rules

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance Federal Reserve Bank Holding Companies SIFIs Liquidity Standards Stress Test OCC Of Interest to Non-US Persons LCR Bank Compliance

  • Fed proposes supervisory categories

    Agency Rule-Making & Guidance

    On October 31, the Federal Reserve announced a proposed rulemaking to more closely match certain regulations for large banking organizations with their risk profile. The proposal would establish four risk-based categories for applying the regulatory capital rule, the liquidity coverage ratio rule, and the proposed net stable funding ratio rule for banks with $100 billion or more in assets. Specifically, the Federal Reserve proposes to establish the four categories using risk-based indicators, such as size, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure. According to the proposal, the most significant changes will be for banks are in the two lowest risk categories:

    • Banks with $100 billion to $250 billion in total consolidated assets would generally fall into the lowest risk category and would (i) no longer be subject to the standardized liquidity requirements; (ii) no longer be required to conduct company-run stress tests, and (iii) be subject to supervised stress tests on a two-year cycle.
    • Banks with $250 billion or more in total consolidated assets, or material levels of other risk factors, that are not global systemically important banking institutions (GSIBs), would (i) have reduced liquidity requirements; and (ii) only be required to perform company run stress tests on a two-year cycle. These banks would still be subject to annual supervised stress tests.

    Banks in the highest two risk categories, including GSIBs, would not see any changes to capital or liquidity requirements. A chart of the proposed requirements for each risk category is available here.

    Comments on the proposal must be received by January 22, 2019.

    Additionally, the Federal Reserve released a joint proposal with the OCC and FDIC that would tailor requirements under the regulatory capital rule, the Liquidity Coverage Ratio and the proposed Net Stable Funding Ratio to be consistent with the prudential standard changes.

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC Bank Supervision GSIBs Liquidity Standards Stress Test

  • Agencies issue interim final rules to comply with EGRRCPA

    Agency Rule-Making & Guidance

    On August 22 and 23, the OCC, Federal Reserve, and FDIC (Agencies) jointly issued two interim final rules to comply with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) (previously Senate bill S.2155).

    On August 22, the Agencies issued an interim final rule amending the liquidity coverage ratio (LCR) rule to treat certain eligible municipal securities as high-quality liquid assets. The LCR rule applies to banking organizations that have $250 billion or more in total assets or that have $10 billion or more in foreign exposures, and to their subsidiaries that have assets of $10 billion, as required by Section 403 of EGRRCPA. According to the FDIC’s Financial Institution Letter, FIL-43-2018, the interim final rule amends the LCR rule to (i) add liquid, readily-marketable, and investment grade municipal obligations to the list of assets eligible for treatment as level 2B liquid assets; (ii) include a definition for “municipal obligations”; and (iii) add a reference to the Federal Reserve’s definition of “liquid and readily-marketable.” The rule takes effect upon publication in the Federal Register and comments are due within 30 days of publication.

    On August 23, the Agencies issued an additional interim final rule allowing a lengthened examination cycle for an expanded number of qualifying insured depository institutions and U.S. branches and agencies of foreign banks. Specifically, as authorized by EGRRCPA, the interim final rule would allow qualifying insured depository institutions with less than $3 billion in total assets (an increase from the previous threshold of $1 billion) to be eligible for an 18-month on-site examination cycle. The rule takes effect upon publication in the Federal Register and comments are due within 60 days of publication.

    Agency Rule-Making & Guidance S. 2155 Bank Supervision Examination Liquidity Standards FDIC OCC Federal Reserve EGRRCPA

  • Ginnie Mae Revises Net Worth And Liquidity Requirements


    On October 17, Ginnie Mae announced that it would be adjusting its minimum net worth and liquid asset requirements for Single-Family Issuers and Issuers that participate in at least two Mortgage-Backed Securities programs. For Single-Family Issuers, the minimum net worth will be $2,500,000 plus .35% of the Issuer’s total effective outstanding Single-Family obligations; the minimum liquidity will be either $1,000,000 or .10% of the Issuer’s Single-Family securities. For Issuers participating in more than one Mortgage-Backed Securities program, the new minimum net worth and liquid assets requirement will be adjusted so that they are “equal to or greater than the sum of the minimum requirements for all the program types in which the Issuer is approved to participate, as opposed to the highest program requirement.” The new requirements will be effective January 1, 2015 for those Issuers seeking approval in the new year, but for Issuers approved on or before December 31, 2014, the new requirements take effect beginning December 31, 2015.

    Liquidity Standards Ginnie Mae

  • Prudential Regulators Finalize Midsize Bank Stress Test Guidance

    Consumer Finance

    On March 5, the Federal Reserve Board, the OCC, and the FDIC issued final guidance for stress tests conducted by banking institutions with more than $10 billion but less than $50 billion in total consolidated assets. Under Dodd-Frank Act-mandated regulations adopted in October 2012, such firms are required to conduct annual stress tests. The guidance discusses (i) supervisory expectations for stress test practices, (ii) provides examples of practices that would be consistent with those expectations, and (iii) offers additional details about stress test methodologies. Covered institutions are required to perform their first stress tests under the Dodd-Frank Act by March 31, 2014.

    FDIC Dodd-Frank Federal Reserve OCC Capital Requirements Bank Supervision Liquidity Standards


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