Questions and Answers on the Liquidity Coverage Ratio

17 September 2014
View Client Update

Key takeaways:

  • On September 3, the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency released a final rule that applies a Liquidity Coverage Ratio (the “LCR”) to banking organizations with $250 billion or more in total consolidated assets (the “Final Rule”). Bank holding companies below $250 billion but with at least $50 billion in total consolidated assets will apply a modified version of the LCR.
  • The LCR becomes effective January 1, 2015, subject to a two-year phase-in period thereafter. The phase-in period affects both the how quickly daily LCR calculations must be performed, as well as the percentage of the coverage ratio that must be met. Banking organizations subject to the modified LCR do not have to make daily calculations.
  • The LCR requires each banking organization to ensure that the ratio of its eligible High Quality Liquid Assets (“HQLA”) (numerator) over Total Net Cash Outflows (denominator) equals or exceeds 1, or, in the case of those eligible to apply the modified LCR, 0.70.
  • The calculation of eligible HQLA and Total Net Cash Outflows are subject to detailed rules, which are summarized in the client update.