U.S. banking regulators have made further progress on the post-crisis reform agenda by finalizing new liquidity requirements for large banks, revising leverage rules, and proposing new swap margin requirements.
The three federal banking regulators in the U.S. — the U.S. Federal Reserve Board, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency — Wednesday announced several reform measures. First, they finalized rules to strengthen the liquidity positions of large financial institutions. The new rules in this area will create a new minimum liquidity requirement for large and internationally-active banking organizations.
The final rule is largely identical to the rule proposed earlier in the year, although the regulators have made several adjustments in response to public comments, regulators note. They also indicate that the final rule is generally consistent with the Basel Committee’s liquidity standards, but that it is more stringent in certain areas, including that it provides a shorter implementation deadline. “The accelerated transition period reflects a desire to maintain the improved liquidity positions that U.S. institutions have established since the financial crisis,” regulators say. Firms will be required to be fully compliant with the rule by Jan. 1, 2017.
The new “liquidity coverage ratio” (LCR) requirement will apply to all banking organizations with US$250 billion or more in total consolidated assets, or banks with US$10 billion or more in on-balance sheet foreign exposure. A less stringent requirement will be applied to smaller banks, which have at least US$50 billion in total assets. The rule does not apply to bank holding companies, or to non-bank financials that have been designated for enhanced supervision by the Financial Stability Oversight Council (FSOC). The Fed plans to apply enhanced liquidity standards to FSOC-designated institutions however through a forthcoming rule.
Separately, the Fed, FDIC and OCC also adopted a final rule modifying certain aspects of bank leverage requirements to conform with recent changes agreed to by the Basel Committee. And, they (along with a couple of other federal agencies) also proposed a rule to establish margin requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants.
The proposed swap margin requirements “are intended to address a number of weaknesses in the regulation and structure of the swap markets that were revealed during the recent financial crisis. The requirements are intended to reduce risk, increase transparency, and promote market integrity,” the regulators said.
Comments on the proposed rules are due in 60 days. Industry trade group, the Securities Industry and Financial Markets Association (SIFMA), noted that it is reviewing the new swap margin proposals.
“Given the global nature of the swaps market, we believe it is essential that U.S. margin requirements for non-centrally cleared swaps and security-based swaps are consistent with the final policy framework agreed by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions,” said SIFMA president and CEO, Kenneth Bentsen, Jr., in a statement.