4. Joint Final Rule Expands HQLAs under LCR Rules to add Certain Municipal Securities

February 13, 2021 No comments yet

4. Joint Final Rule Expands HQLAs under LCR Rules to add Certain Municipal Securities

The banking that is federal have actually jointly granted one last guideline that adopts without replace the agencies’ interim final guideline given in August 2018, amending their liquidity protection ratio (“LCR”) guidelines to take care of specific qualified municipal responsibilities as top-notch fluid assets (“HQLAs”). The final guideline released on May 30 implements area 403 associated with EGRRCPA, which needed the agencies to deal with a municipal responsibility being an HQLA under the LCR guidelines if that responsibility is “liquid and readily-marketable” and “investment grade.” Part 403 defines “municipal obligation” being a obligation of a situation, any governmental subdivision of circumstances, or any agency or instrumentality of a situation or such governmental subdivision. Part 403 defines “liquid and readily-marketable” as getting the meaning provided to that term within the Federal Reserve’s guidelines at 12 C.F.R. § 249.3, which requires that the responsibility is traded in an energetic additional market with over two committed market manufacturers, a lot of non-market manufacturer individuals on both the purchase and sell edges, prompt and observable market rates, and a trading volume that is high. Section 403 defines “investment grade” as having this is provided to that term within the OCC’s guidelines at 12 C.F.R. § 1.2, which calls for that the issuer for the responsibility have actually “an sufficient ability to satisfy monetary commitments underneath the [obligation] for the projected life regarding the asset or publicity.” The OCC’s definition further clarifies that the issuer has “an sufficient ability to fulfill monetary commitments” if its chance of standard is low which is likely to make complete and prompt payment of principal and interest. The rule that is final effective on July 5, 2019.

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