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Fed's finalized rule allows investment-grade general obligation state and municipal securities to count as HQLA

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Fed's finalized rule allows investment-grade general obligation state and municipal securities to count as HQLA

The Federal Reserve Board on April 1 finalized a rule allowinginvestment-grade, U.S. general obligation state and municipal securities to countas high-quality liquidity assets up to certain levels, according to a same-day newsrelease.

The ruling, proposedin 2015, states that large banks may use certain general obligation state and municipalsecurities in the range of assets up to certain levels, if they meet the same liquiditycriteria that currently apply to corporate debt securities.

The Fed added that the final ruling does not include therestriction on insured municipal securities and the limit on the amount of municipalsecurities issuance that may count as HQLA.

The finalized ruling is intended to help qualified bankscomply with regulatory requirements designed to ensure that the financial institutionshave the capacity to meet liquidity needs during a period of financial stress. The final rule appliesonly to banks supervised by the Fed and subject to liquid coverage ratio requirement,leaving community banks out:

* Bank holding companies, certain savings and loan holding companies,and state member banks with $250 billion or more in total consolidated assets or$10 billion or more in on-balance sheet foreign exposure;

* State member banks with $10 billion or more in total consolidatedassets that are subsidiaries of the above entities;

* Nonbank financial companies designated by the Financial StabilityOversight Council for Fed supervision, to which the Fed has applied the LCR requirementby separate rule or order; and

* Bank holding companies and certain savings and loan holdingcompanies with $50 billion or more in total consolidated assets, to which a lessstringent LCR applies.

The final rule will be effective July 1.

A congressionalbill requiring bank regulators to treat certain municipal bonds as HQLAhas been referred to the Senate Committee on Banking, Housing and Urban Affairs.