Broker-Dealers Affiliated with Banks Meet the LCR: Five Key Points

8 September 2014
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Key takeaways:

  • On September 3, 2014, federal banking regulators adopted the final liquidity coverage ratio rules, which require banks and bank holding companies with $50 billion or more in total consolidated assets to maintain High Quality Liquid Assets (“HQLA”) as funding for expected total net cash outflows over the next 30 days.
  • Broker-dealers affiliated with covered banking organizations should evaluate the impact of the rules on their businesses, especially activities that involve significant cash outflows and inflows, such as prime brokerage services, margin lending and using one customer’s assets to fund loans to other customers.
  • Broker-dealers also need to be cognizant of their HQLA positions, because cash held for customer reserve purposes will not constitute HQLA and any excess HQLA will not be available to the larger banking organization.