Federal Banking Agencies Take First Steps to Implement the Basel III Quantitative Liquidity Regime in the United States

“Super-equivalent” Liquidity Coverage Ratio proposed for the largest U.S. banking institutions; a less-stringent “modified” LCR would apply to other significant bank holding companies

One response to the financial crisis of 2008 has been the development of a quantitative liquidity regulatory framework at the international level, culminating in the Basel III international liquidity framework first introduced in 2010. In October 2013, the federal banking agencies took their first steps towards introducing the Basel III liquidity framework in the United States through a notice of proposed rulemaking that would impose a minimum liquidity coverage ratio (“LCR”) requirement on certain banking and non-banking financial institutions (the “LCR Proposal”). The LCR Proposal largely follows the Basel III LCR, but would be stricter in several respects, featuring a faster implementation timeline, a narrower definition of “high-quality” liquid assets, and a more complicated method for calculating net cash outflows designed to address potential maturity mismatches.

The attached memo identifies the key considerations and areas of controversy raised by the LCR Proposal and provides a side-by-side comparison of the LCR Proposal’s requirements as compared to the Basel III LCR. Comments on the LCR Proposal are due by January 31, 2014.