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U.S. regulatory capital
Basel III liquidity coverage ratio final rule
The U.S. Basel III liquidity coverage ratio (LCR) rule is finalized. Learn how this ruling impacts your financial institution.
The U.S. LCR rule is finalized and requires banks to maintain minimum amounts of liquid assets to withstand cash outflows over a 30-day horizon, calculated as per prescribed methodology. Read on for highlights from Deloitte’s analysis of the rule, or download the report for observations, impacts, and a more extensive review.
Scope and applicability
Applicability is based on the asset size, type of the institution, and activities.
- LCR applies to the largest internationally active banks, while large banks are subject to a less stringent LCR requirement (modified LCR)
- Nonbank systemically important financial institutions (SIFIs), and foreign banking organizations (FBOs) with assets >$50 billion are exempted, and will be addressed through separate future rulemaking
Implementation and reporting timelines
Transition period remains same, however relief provided around calculation frequency.
- LCR: Transition period remains 2015 to 2017, but postpones daily reporting requirement
- Modified LCR: Postpones effective date to 2016 and removes daily reporting requirement
- LCR with accelerated timelines: Imposes an accelerated timeline for daily reporting
Ratio calculation overview
Calculation utilizes a supervisory-defined methodology with prescribed factors and rates that takes into account a 30-day stress scenario combining idiosyncratic and market-wide shocks.
- Modified approach for calculating maturity mismatch
- Expansion of eligible HQLAs
- Adjustments to certain outflow/inflow rates, etc.
However, U.S. final rule remains more stringent in certain areas than BCBS international guidance
Shorter transition timeline (2017 instead of 2019)
- Maturity mismatch add-on calculation
- Certain assets (cash, municipal bonds, central bank restricted committed facilities, covered bonds, etc.) considered ineligible as HQLA