Yesterday, April 26th, the Federal Deposit Insurance Corporation held an open board meeting at which they released the U.S. proposed net stable funding ratio (“NSFR”) requirements and related memo as part of their agenda. The Office of the Comptroller of the Currency also approved the proposal at this meeting.
The NSFR requirements are designed to reduce funding risk over the longer term by requiring banks to fund their activities with sufficiently stable sources of funding. They also require banks to maintain an amount of available stable funding over a prospective one-year period (the numerator) equal to its amount of required stable funding (the denominator). SFIG’s Regulatory Capital & Liquidity Committee will be commenting on this proposed rule. Comments are due by August 5, 2016.
The proposed NSFR requirements would be effective as of January 1, 2018. The proposal also includes revisions to definitions currently used in the Liquidity Coverage Ratio (“LCR”) rule. These revisions would become effective for purposes of the LCR rule at the beginning of the calendar quarter after finalization of the proposed rule, instead of on January 1, 2018.
Similar to the LCR, the proposed rule is generally negative for RMBS and ABS liquidity. The proposal is consistent with the final Basel guidelines in all relevant respects, except that private label MBS does not qualify as a level 2B liquid asset and therefore for a lower required stable funding amount. (Under the final Basel guidelines, private label RMBS is afforded a degree of liquidity treatment. ABS is not considered at all liquid.) The NSFR would apply to all U.S. bank and savings and loan holding companies with consolidated assets of $250 billion or more or $10 billion or more of on-balance sheet foreign exposures.
The proposed rule also contains a modified version of the NSFR that would apply to U.S. bank and savings and loan holding companies with consolidated assets of $50 billion or more and less than $10 billion of on-balance sheet foreign exposures. The modified NSFR would require available stable funding that at least equals 70 percent of a banking organization’s required stable funding amount.
SFIG submitted a comment letter in April of 2014 to the Basel Committee on Banking Supervision (“Basel”) in response to the Basel III NSFR consultative document. The final Basel III NSFR guidelines were published in October 2014. None of the comments made in SFIG’s 2014 response were reflected in the latest proposed NSFR rule.
The Board of Governors of the Federal Reserve Board will consider the proposed NSFR rule at its meeting on May 3, 2016.
If you are interested in joining our Regulatory Capital & Liquidity Committee, please contact Alyssa.Acevedo@sfindustry.org.