In three separate letters, SIFMA and six other financial industry associations filed comments with the Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“FRB”) and the Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “Federal Agencies”) on the proposed rules regarding the liquidity coverage ratio (“LCR”). The letters contained comments on the LCR proposal in connection with international standards, securitization and municipal securities.
In the first letter (linked below), SIFMA, the Structured Finance Industry Group (“SFIG”), the Clearing House Association, the American Bankers Association (“ABA”), the Financial Services Roundtable (“FSR”), the Institute of International Bankers (“IIB”) and the International Association of Credit Portfolio Managers (collectively, the “Associations”) commented on the LCR proposal in connection with the international liquidity standards published by the Basel Committee on Banking Supervision (“Basel LCR”). The Associations believe that the Basel LCR “strikes an appropriate balance” between capturing liquidity risk and the concerns raised by banks with respect to the measurement of that risk and the scope of oversight and related compliance regulations. The Associations share concerns that the U.S. LCR Proposal deviates so significantly from the Basel LCR that it detracts from “the goals of clarity and transparency across markets, competitive equality, and minimizing opportunities for regulatory arbitrage and the potential balkanization of national markets.”
Regarding securitization, SIFMA and the SFIG also submitted comments to the Federal Agencies stating their support for the effort to implement an LCR requirement that is generally consistent with the Basel LCR. However, SIFMA and the SFIG also stated that they believe LCR regulations should recognize that traditional securitization activities are (i) an essential source of core funding to the real economy, and (ii) an important part of a bank’s liquidity management strategy. SIFMA and the SFIG proposed adjustments to the proposal, which they stated could allow the Federal Agencies to “sufficiently recognize these realities while still meeting their stated goals and objectives for enhanced liquidity standards.”
Additionally, the SIFMA Municipal Securities Division provided comments to the Federal Agencies on issues in the proposal related to municipal securities, municipal securities financing, and state and local government finance. More specifically, the comments focus on three areas:
- the exclusion of municipal securities from the definition of High-Quality Liquid Assets (“HQLA”),
- outflow rate assumptions applied to bank liquidity facilities extended to certain special purpose entities (municipal Tender Option Bond financing vehicles), and
- the outflow rate assumptions assigned to public sector entity deposits that are collateralized with municipal bonds.