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September 14, 2014

LCR Rules Finalized | OCC

According to a press release from the Office of the Comptroller of the Currency (OCC), the US-rules for the Liquidity Coverage Ratio (LCR) were finalized on September 3rd. The rules were finalized by the OCC, the FDIC and the Federal Reserve Board.

Apparently, the finalized rules are largely similar to the proposed rules, with the following changes based on industry feedback:

  • Changes to the securities that are considered High Quality Liquid Assets (HQLA) – i.e. the numerator of the LCR
  • A phasing in of daily calculation requirements
  • A revised approach to address maturity mismatch during the 30-day period under which LCR is calculated
  • Changes in the following for financial institutions subject to “LCR Lite” (or Modified LCR):
    • Stress period
    • Calculation frequency
    • Implementation timeline

What is LCR?

LCR is a regulatory measure developed to ensure that banks have a high enough inventory of unencumbered High Quality Liquid Assets (HQLAs) to withstand 30-day stresses to market liquidity. It is calculated as follows:

LCR=  (Total Value of HQLA)/(Total Net 30-day Cash Outflows)

Where:

  • HQLA are determined by the OCC, FDIC and the Federal Reserve Board
  • Total Net 30-day Cash Outflows are defined as the Total Cash Outflows minus the Total Cash Inflows
  • Total Cash Outflows are defined as the outstanding liabilities and off-balance sheet commitments, multiplied by the rate at which they are expected to be drawn down, within the 30-day liquidity stress scenario
  • Total Cash Inflows are defined as the outstanding contractual receivables, multiplied by the rate at which they are expected to flow in, within the 30-day liquidity stress scenario

 


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