[Federal Register Volume 81, Number 105 (Wednesday, June 1, 2016)]
[Proposed Rules]
[Pages 35124-35183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11505]



[[Page 35123]]

Vol. 81

Wednesday,

No. 105

June 1, 2016

Part II





Department of the Treasury





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Office of the Comptroller of the Currency





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12 CFR Part 50





Federal Reserve System





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12 CFR Part 249





 Federal Deposit Insurance Corporation





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12 CFR Part 329





Net Stable Funding Ratio: Liquidity Risk Measurement Standards and 
Disclosure Requirements; Proposed Rule

  Federal Register / Vol. 81 , No. 105 / Wednesday, June 1, 2016 / 
Proposed Rules  

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 50

[Docket ID OCC-2014-0029]
RIN 1557-AD97

FEDERAL RESERVE SYSTEM

12 CFR Part 249

[Regulation WW; Docket No. R-1537]
RIN 7100-AE 51

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 329

RIN 3064-AE 44


Net Stable Funding Ratio: Liquidity Risk Measurement Standards 
and Disclosure Requirements

AGENCY: Office of the Comptroller of the Currency, Department of the 
Treasury; Board of Governors of the Federal Reserve System; and Federal 
Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking with request for public comment.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) are inviting comment on a proposed 
rule that would implement a stable funding requirement, the net stable 
funding ratio (NSFR), for large and internationally active banking 
organizations. The proposed NSFR requirement is designed to reduce the 
likelihood that disruptions to a banking organization's regular sources 
of funding will compromise its liquidity position, as well as to 
promote improvements in the measurement and management of liquidity 
risk. The proposed rule would also amend certain definitions in the 
liquidity coverage ratio rule that are also applicable to the NSFR. The 
proposed NSFR requirement would apply beginning on January 1, 2018, to 
bank holding companies, certain savings and loan holding companies, and 
depository institutions that, in each case, have $250 billion or more 
in total consolidated assets or $10 billion or more in total on-balance 
sheet foreign exposure, and to their consolidated subsidiaries that are 
depository institutions with $10 billion or more in total consolidated 
assets.
    In addition, the Board is proposing a modified NSFR requirement for 
bank holding companies and certain savings and loan holding companies 
that, in each case, have $50 billion or more, but less than $250 
billion, in total consolidated assets and less than $10 billion in 
total on-balance sheet foreign exposure. Neither the proposed NSFR 
requirement nor the proposed modified NSFR requirement would apply to 
banking organizations with consolidated assets of less than $50 billion 
and total on-balance sheet foreign exposure of less than $10 billion.
    A bank holding company or savings and loan holding company subject 
to the proposed NSFR requirement or modified NSFR requirement would be 
required to publicly disclose the company's NSFR and the components of 
its NSFR each calendar quarter.

DATES: Comments on this notice of proposed rulemaking must be received 
by August 5, 2016.

ADDRESSES: Comments should be directed to: OCC: Because paper mail in 
the Washington, DC area is subject to delay, commenters are encouraged 
to submit comments by the Federal eRulemaking Portal or email, if 
possible. Please use the title ``Net Stable Funding Ratio: Liquidity 
Risk Measurement Standards and Disclosure Requirements'' to facilitate 
the organization and distribution of the comments. You may submit 
comments by any of the following methods:
     Federal eRulemaking Portal--``regulations.gov'': Go to 
http://www.regulations.gov. Enter ``Docket ID OCC-2014-0029'' in the 
Search Box and click ``Search''. Results can be filtered using the 
filtering tools on the left side of the screen. Click on ``Comment 
Now'' to submit public comments. Click on the ``Help'' tab on the 
Regulations.gov home page to get information on using Regulations.gov, 
including instructions for submitting public comments.
     Email: [email protected].
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW., Suite 
3E-218, Mail Stop 9W-11, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, 
Mail Stop 9W-11, Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2014-0029'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide, such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to http://www.regulations.gov. Enter ``Docket ID OCC-2014-0029'' in the Search 
box and click ``Search''. Comments can be filtered by Agency using the 
filtering tools on the left side of the screen. Click on the ``Help'' 
tab on the Regulations.gov home page to get information on using 
Regulations.gov, including instructions for viewing public comments, 
viewing other supporting and related materials, and viewing the docket 
after the close of the comment period.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC. 
For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 649-
6700 or, for persons who are deaf or hard of hearing, TTY, (202) 649-
5597. Upon arrival, visitors will be required to present valid 
government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
     Docket: You may also view or request available background 
documents and project summaries using the methods described above.
    Board: You may submit comments, identified by Docket No. R-1537; 
RIN 7100 AE-51, by any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include docket 
number in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452-3102.
     Mail: Robert deV. Frierson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.

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    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper form in 
Room 3515, 1801 K Street NW., (between 18th and 19th Street NW.) 
Washington, DC 20006 between 9:00 a.m. and 5:00 p.m. on weekdays.
    FDIC: You may submit comments by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street NW., Washington, DC 20429.
     Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street), on business days 
between 7:00 a.m. and 5:00 p.m.
     Email: [email protected].
    Instructions: Comments submitted must include ``FDIC'' and ``RIN: 
3064-AE44.'' Comments received will be posted without change to http://www.FDIC.gov/regulations/laws/federal/propose.html, including any 
personal information provided.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Christopher McBride, Group Leader, (202) 649-6402, James 
Weinberger, Technical Expert, (202) 649-5213, or Ang Middleton, Bank 
Examiner (Risk Specialist), (202) 649-7138, Treasury & Market Risk 
Policy; Thomas Fursa, Bank Examiner (Capital Markets Lead Expert), 
(917) 344-4421; Patrick T. Tierney, Assistant Director, Carl Kaminski, 
Special Counsel, or Henry Barkhausen, Senior Attorney, Legislative and 
Regulatory Activities Division, (202) 649-5490; or Tena Alexander, 
Acting Assistant Director, or David Stankiewicz, Counsel, Securities 
and Corporate Practices Division, (202) 649-5510; for persons who are 
deaf or hard of hearing, TTY, (202) 649-5597; Office of the Comptroller 
of the Currency, 400 7th Street SW., Washington, DC 20219.
    Board: Gwendolyn Collins, Assistant Director, (202) 912-4311, Peter 
Clifford, Manager, (202) 785-6057, Adam S. Trost, Senior Supervisory 
Financial Analyst, (202) 452-3814, J. Kevin Littler, Senior Supervisory 
Financial Analyst, (202) 475-6677, or Peter Goodrich, Risk Management 
Specialist, (202) 872-4997, Risk Policy, Division of Banking 
Supervision and Regulation; Benjamin W. McDonough, Special Counsel, 
(202) 452-2036, Dafina Stewart, Counsel, (202) 452-3876, Adam Cohen, 
Counsel, (202) 912-4658, or Brian Chernoff, Senior Attorney, (202) 452-
2952, Legal Division, Board of Governors of the Federal Reserve System, 
20th and C Streets NW., Washington, DC 20551. For the hearing impaired 
only, Telecommunication Device for the Deaf (TDD), (202) 263-4869.
    FDIC: Bobby R. Bean, Associate Director, (202) 898-6705, Eric W. 
Schatten, Capital Markets Policy Analyst, (202) 898-7063, Andrew D. 
Carayiannis, Capital Markets Policy Analyst, (202) 898-6692, Nana 
Ofori-Ansah, Capital Markets Policy Analyst, (202) 898-3572, Capital 
Markets Branch, Division of Risk Management Supervision, (202) 898-
6888; Gregory S. Feder, Counsel, (202) 898-8724, Andrew B. Williams, 
II, Counsel, (202) 898-3591, or Suzanne J. Dawley, Senior Attorney, 
(202) 898-6509, Supervision and Corporate Operations Branch, Legal 
Division, Federal Deposit Insurance Corporation, 550 17th Street NW., 
Washington, DC 20429. For the hearing impaired only, Telecommunication 
Device for the Deaf (TDD), (800) 925-4618.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
    A. Summary of the Proposed Rule
    B. Background
    C. Overview of the Proposed Rule
    1. NSFR Calculation, Shortfall Remediation, and Disclosure 
Requirements
    2. Scope of Application of the Proposed Rule
    D. Definitions
    1. Revisions to Existing Definitions
    2. New Definitions
    E. Effective Dates
II. Minimum Net Stable Funding Ratio
    A. Rules of Construction
    1. Balance-Sheet Metric
    2. Netting of Certain Transactions
    3. Treatment of Securities Received in an Asset Exchange by a 
Securities Lender
    B. Determining Maturity
    C. Available Stable Funding
    1. Calculation of ASF Amount
    2. ASF Factor Framework
    3. ASF Factors
    D. Required Stable Funding
    1. Calculation of the RSF Amount
    2. RSF Factor Framework
    3. RSF Factors
    E. Derivative Transactions
    1. NSFR Derivatives Asset or Liability Amount
    2. Variation Margin Provided and Received and Initial Margin 
Received
    3. Customer Cleared Derivative Transactions
    4. Assets Contributed to a CCP's Mutualized Loss Sharing 
Arrangement and Initial Margin
    5. Derivatives Portfolio Potential Valuation Changes
    6. Derivatives RSF Amount
    7. Derivatives RSF Amount Numerical Example
    F. NSFR Consolidation Limitations
    G. Interdependent Assets and Liabilities
III. Net Stable Funding Ratio Shortfall
IV. Modified Net Stable Funding Ratio Applicable to Certain Covered 
Depository Institution Holding Companies
    A. Overview and Applicability
    B. Available Stable Funding
    C. Required Stable Funding
V. Disclosure Requirements
    A. Proposed NSFR Disclosure Requirements
    B. Quantitative Disclosure Requirements
    C. Qualitative Disclosure Requirements
    D. Frequency and Timing of Disclosure
VI. Impact Assessment
VII. Solicitation of Comments on Use of Plain Language
VIII. Regulatory Flexibility Act
IX. Riegle Community Development and Regulatory Improvement Act of 
1994
X. Paperwork Reduction Act
XI. OCC Unfunded Mandates Reform Act of 1995 Determination

I. Introduction

A. Summary of the Proposed Rule

    The Office of the Comptroller of the Currency (OCC), the Board of 
Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) (collectively, the agencies) are 
inviting comment on a proposed rule (proposed rule) that would 
implement a net stable funding ratio (NSFR) requirement. The proposed 
NSFR requirement is designed to reduce the likelihood that disruptions 
to a banking organization's regular sources of funding will compromise 
its liquidity position, as well as to promote improvements in the 
measurement and management of liquidity risk. By requiring banking 
organizations to maintain a stable funding profile, the proposed rule 
would reduce liquidity risk in the financial sector and provide for a 
safer and more resilient financial system.
    Maturity and liquidity transformation are important components of 
the financial intermediation performed by banking organizations, which 
contributes to efficient resource allocation and credit creation in the 
United States. These activities entail a certain inherent level of 
funding instability, however. Consequently, the risks of these 
activities must be well-managed by banking organizations in order to 
help ensure their ongoing

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ability to provide financial intermediation.
    The proposed rule would establish a quantitative metric, the NSFR, 
to measure the stability of a covered company's funding profile.\1\ 
Under the requirement, a covered company would calculate a weighted 
measure of the stability of its equity and liabilities over a one-year 
time horizon (its available stable funding amount or ASF amount). The 
proposed rule would require a covered company's ASF amount to be 
greater than or equal to a minimum level of stable funding (its 
required stable funding amount or RSF amount) calculated based on the 
liquidity characteristics of its assets, derivative exposures, and 
commitments over the same one-year time horizon. A covered company's 
NSFR would measure the ratio of its ASF amount to its RSF amount. 
Sections II.C and II.D of this SUPPLEMENTARY INFORMATION section 
describe in more detail the calculation of a covered company's ASF and 
RSF amounts, respectively.
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    \1\ As discussed in section I.C.2 of this Supplementary 
Information section, covered companies are bank holding companies, 
certain savings and loan holding companies, and depository 
institutions, in each case with $250 billion or more in total 
consolidated assets or $10 billion or more in total on-balance sheet 
foreign exposure, as well as any consolidated subsidiary depository 
institution with total consolidated assets of $10 billion or more.
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    The proposed rule would require a covered company to maintain a 
minimum NSFR of 1.0. Given their size, complexity, scope of activities, 
and interconnectedness, covered companies with an NSFR of less than 1.0 
face an increased likelihood of liquidity stress in the event of 
demands for repayment of their short- and medium-term liabilities, 
which may also contribute to financial instability in the broader 
economy. The NSFR would help to identify a covered company that has a 
heightened liquidity risk profile and poses greater risk to U.S. 
financial stability. It would allow the agencies, before a liquidity 
crisis, to require the covered company to take steps to improve its 
liquidity and resilience, as discussed in section I.C.1 of this 
Supplementary Information section.
    As part of this proposal, the Board is also inviting comment on a 
modified NSFR requirement for bank holding companies and savings and 
loan holding companies without significant insurance or commercial 
operations that, in each case, have $50 billion or more, but less than 
$250 billion, in total consolidated assets and less than $10 billion in 
total on-balance sheet foreign exposure (each, a modified NSFR holding 
company). This modified NSFR requirement is described in section IV of 
this SUPPLEMENTARY INFORMATION section.
    The proposed rule also includes public disclosure requirements for 
depository institution holding companies that would be subject to the 
proposed NSFR requirement or modified NSFR requirement.

B. Background

    The 2007-2009 financial crisis exposed the vulnerability of large 
and internationally active banking organizations to liquidity shocks. 
For example, before the crisis, many banking organizations lacked 
robust liquidity risk management metrics and relied excessively on 
short-term wholesale funding to support less liquid assets.\2\ In 
addition, firms did not sufficiently plan for longer-term liquidity 
risks, and the control functions of banking organizations failed to 
challenge such decisions or sufficiently plan for possible disruptions 
to the organization's regular sources of funding. Instead, the control 
functions reacted only after funding shortfalls arose.
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    \2\ See Senior Supervisors Group, Risk Management Lessons from 
the Global Banking Crisis of 2008, (October 21, 2009), available at 
https://www.newyorkfed.org/medialibrary/media/newsevents/news/banking/2009/SSG_report.pdf.
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    During the crisis, many banking organizations experienced severe 
contractions in the supply of funding. As access to funding became 
limited and asset prices fell, many banking organizations faced the 
possibility of default and failure. The threat this presented to the 
financial system caused governments and central banks around the world 
to provide significant levels of support to these institutions to 
maintain global financial stability. This experience demonstrated a 
need to address these shortcomings at banking organizations and to 
implement a more rigorous approach to identifying, measuring, 
monitoring, and limiting reliance by banking organizations on less 
stable sources of funding.\3\
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    \3\ See id.
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    Since the 2007-2009 financial crisis, the agencies have developed 
quantitative and qualitative standards focused on strengthening banking 
organizations' overall risk management, liquidity positions, and 
liquidity risk management. By improving banking organizations' ability 
to absorb shocks arising from financial and economic stress, these 
measures, in turn, promote a more resilient banking sector and 
financial system. This work has taken into account ongoing supervisory 
reviews and analysis in the United States, as well as international 
discussions regarding appropriate liquidity standards.\4\
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    \4\ See, e.g., Principles for Sound Liquidity Risk Management 
and Supervision (September 2008), available at http://www.bis.org/publ/bcbs144.htm; Basel III: The Liquidity Coverage Ratio and 
liquidity risk monitoring tools (January 2013), available at http://www.bis.org/publ/bcbs238.pdf; Basel III: the net stable funding 
ratio (October 2014), available at http://www.bis.org/bcbs/publ/d295.pdf.
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    The agencies have implemented or proposed several measures to 
improve the liquidity positions and liquidity risk management of 
supervised banking organizations. First, the agencies adopted the 
liquidity coverage ratio (LCR) rule in September 2014,\5\ which 
requires certain banking organizations to hold a minimum amount of 
high-quality liquid assets (HQLA) that can be readily converted into 
cash to meet net cash outflows over a 30-calendar-day period. Second, 
pursuant to section 165 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act \6\ (Dodd-Frank Act) and in consultation with 
the OCC and the FDIC, the Board adopted general risk management, 
liquidity risk management, and stress testing requirements for bank 
holding companies with total consolidated assets of $50 billion or more 
in Regulation YY.\7\ Third, the Board adopted a risk-based capital 
surcharge for global systemically important banking organizations 
(GSIBs) in the United States that is calculated based on a bank holding 
company's risk profile, including its reliance on short-term wholesale 
funding (GSIB surcharge rule).\8\ Fourth, the Board recently proposed a 
long-term debt requirement and a total loss-absorbing capacity (TLAC) 
requirement that would apply to U.S. GSIBs and the U.S. operations of 
certain foreign GSIBs, and would require these firms and operations to 
have sufficient amounts of equity and eligible long-term debt to 
improve their ability to absorb significant losses and withstand 
financial stress, which would also improve the funding profile of these 
firms.\9\
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    \5\ ``Liquidity Coverage Ratio: Liquidity Risk Measurement 
Standards,'' 79 FR 61440 (October 10, 2014), codified at 12 CFR part 
50 (OCC), 12 CFR part 249 (Board), and 12 CFR part 329 (FDIC).
    \6\ Public Law 111-203, 124 Stat. 1376, 1423-1432 (2010) Sec.  
165, codified at 12 U.S.C. 5365.
    \7\ See ``Enhanced Prudential Standards for Bank Holding 
Companies and Foreign Banking Organizations,'' 79 FR 17240 (March 
27, 2014), codified at 12 CFR part 252.
    \8\ ``Regulatory Capital Rules: Implementation of Risk-Based 
Capital Surcharges for Global Systemically Important Bank Holding 
Companies,'' 80 FR 49082 (August 14, 2015).
    \9\ ``Total Loss-Absorbing Capacity, Long-Term Debt, and Clean 
Holding Company Requirements for Systemically Important U.S. Bank 
Holding Companies and Intermediate Holding Companies of Systemically 
Important Foreign Banking Organizations; Regulatory Capital 
Deduction for Investments in Certain Unsecured Debt of Systemically 
Important U.S. Bank Holding Companies,'' 80 FR 74926 (November 20, 
2015).

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[[Page 35127]]

    The agencies have also focused specifically on the importance of 
banking organizations maintaining a stable funding profile. The 
agencies have issued supervisory guidance to address the risks arising 
from excessive reliance on unstable funding, such as short-term 
wholesale funding, both before and after the 2007-2009 financial 
crisis, and have incorporated such guidance in their supervisory 
ratings. For example, in 1990, the Board issued guidance that cautioned 
against excessive reliance on the use of short-term debt,\10\ and in 
2010, the agencies issued interagency guidance emphasizing the 
importance of diversifying funding sources and tenors.\11\ In addition, 
there are statutory restrictions under the Federal Deposit Insurance 
Act (FDI Act) on the ability of an insured depository institution that 
is less than well capitalized to accept or renew brokered deposits, 
which can be a less stable form of funding than other retail 
deposits.\12\
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    \10\ See Supervision and Regulation Letter 90-20 (June 22, 
1990), available at http://www.federalreserve.gov/boarddocs/srletters/1990/sr9020.htm, superseded by OCC, Board, FDIC, Office of 
Thrift Supervision, and National Credit Union Administration, 
``Interagency Policy Statement on Funding and Liquidity Risk 
Management,'' 75 FR 13656 (March 22, 2010) (Interagency 2010 Policy 
Statement on Funding and Liquidity Risk Management); and Supervision 
and Regulation Letter 96-38 (December 27, 1996), available at http://www.federalreserve.gov/boarddocs/srletters/1996/sr9638.htm.
    \11\ See Interagency 2010 Policy Statement on Funding and 
Liquidity Risk Management.
    \12\ See 12 U.S.C. 1831f(a).
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    The proposed rule would complement existing law and regulations and 
the proposed TLAC and long-term debt requirements, as well as existing 
supervisory guidance.\13\ For example, it would build on the LCR rule's 
goal of improving resilience to short-term economic and financial 
stress by focusing on the stability of a covered company's structural 
funding profile over a longer, one-year time horizon. It would also 
address liquidity risks that are not readily mitigated by the agencies' 
capital requirements. In a financial crisis, financial institutions 
without stable funding sources may be forced by creditors to monetize 
assets at the same time, driving down asset prices. The proposed rule 
would mitigate such risks by directly increasing the funding resilience 
of individual covered companies, thereby indirectly increasing the 
overall resilience of the U.S. financial system.
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    \13\ See, e.g., Interagency 2010 Policy Statement on Funding and 
Liquidity Risk Management; Supervision and Regulation Letter 12-17 
(December 12, 2012), available at http://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm; Interagency Guidance on Funds 
Transfer Pricing Related to Funding and Contingent Liquidity Risks 
(March 1, 2016), available a: http://www.occ.gov/news-issuances/bulletins/2016/bulletin-2016-7.html (OCC), http://www.federalreserve.gov/bankinforeg/srletters/sr1603a1.pdf (Board), 
and https://www.fdic.gov/news/news/financial/2016/fil16012.pdf 
(FDIC).
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    The proposed NSFR requirement would also provide a standardized 
means for measuring the stability of a covered company's funding 
structure, promote greater comparability of funding structures across 
covered companies and foreign firms subject to similar requirements, 
and improve transparency and increase market discipline through the 
proposed rule's public disclosure requirements.
    The proposed rule would be consistent with the net stable funding 
ratio standard published by the Basel Committee on Banking Supervision 
(BCBS) \14\ in October 2014 (Basel III NSFR) \15\ and the net stable 
funding ratio disclosure standards published by the BCBS in June 
2015.\16\ The Basel III NSFR is a longer-term structural funding metric 
that complements the BCBS's short-term liquidity risk metric, the BCBS 
liquidity coverage ratio standard (Basel III LCR).\17\ In developing 
the Basel III NSFR, the agencies and their international counterparts 
in the BCBS considered a number of possible structural funding metrics. 
For example, the BCBS considered the traditional ``cash capital'' 
measure, which compares a firm's amount of long-term and stable sources 
of funding to the amount of its illiquid assets. The BCBS found that 
this cash capital measure failed to account for material funding risks, 
such as those related to off-balance sheet commitments and certain on-
balance sheet short-term funding and lending mismatches. The Basel III 
NSFR incorporates consideration of these and other funding risks, as 
would the proposed rule's NSFR requirement.
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    \14\ The BCBS is a committee of banking supervisory authorities 
that was established by the central bank governors of the G10 
countries in 1975. It currently consists of senior representatives 
of bank supervisory authorities and central banks from Argentina, 
Australia, Belgium, Brazil, Canada, China, France, Germany, Hong 
Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, 
the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, 
Sweden, Switzerland, Turkey, the United Kingdom, and the United 
States. Documents issued by the BCBS are available through the Bank 
for International Settlements Web site at http://www.bis.org.
    \15\ See supra note 4.
    \16\ ``Net Stable Funding Ratio disclosure standards'' (June 
2015), available at http://www.bis.org/bcbs/publ/d324.pdf (Basel III 
NSFR Disclosure Standards).
    \17\ See supra note 4.
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C. Overview of the Proposed Rule

1. NSFR Calculation, Shortfall Remediation, and Disclosure Requirements
    The proposed rule would require a covered company to maintain an 
amount of ASF, or available stable funding, that is no less than the 
amount of its RSF, or required stable funding, on an ongoing basis. A 
covered company's NSFR would be expressed as a ratio of its ASF amount 
(the numerator of the ratio) to its RSF amount (the denominator of the 
ratio). A covered company's ASF amount would be a weighted measure of 
the stability of the company's funding over a one-year time horizon. A 
covered company would calculate its ASF amount by applying standardized 
weightings (ASF factors) to its equity and liabilities based on their 
expected stability. Similarly, a covered company would calculate its 
RSF amount by applying standardized weightings (RSF factors) to its 
assets, derivative exposures, and commitments based on their liquidity 
characteristics.\18\ These characteristics would include credit 
quality, tenor, encumbrances, counterparty type, and characteristics of 
the market in which an asset trades, as applicable.
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    \18\ ASF factors are described in section II.C, RSF factors are 
described in section II.D, and the derivatives RSF amount is 
described in section II.E of this Supplementary Information section.
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    As noted above, the proposed rule would require a covered company 
to maintain, on a consolidated basis, an NSFR equal to or greater than 
1.0. The proposed rule would require a covered company to take several 
steps if its NSFR fell below 1.0, as discussed in more detail in 
section III of this SUPPLEMENTARY INFORMATION section. In particular, a 
covered company would be required to notify its appropriate Federal 
banking agency of the shortfall no later than 10 business days (or such 
other period as the appropriate Federal banking agency may require by 
written notice) following the date that any event has occurred that 
would cause or has caused the covered company's NSFR to fall below the 
minimum requirement. In addition, a covered company would be required 
to submit to its appropriate Federal banking agency a plan to remediate 
its NSFR shortfall. These procedures would enable supervisors to 
monitor and respond appropriately to the particular circumstances that 
give rise to any deficiency in a covered company's funding profile. 
Given the range of possible reasons, both

[[Page 35128]]

idiosyncratic and systemic, for a covered company having an NSFR below 
1.0, the proposed rule would establish a framework that would allow for 
flexible supervisory responses. The agencies expect circumstances where 
a covered company has an NSFR shortfall to arise only rarely.
    Nothing in the proposed rule would limit the authority of the 
agencies under any other provision of law or regulation to take 
supervisory or enforcement actions, including actions to address unsafe 
or unsound practices or conditions, deficient liquidity levels, or 
violations of law.
    The proposed rule would require a covered company that is a 
depository institution holding company to publicly disclose, each 
calendar quarter, its NSFR and NSFR components in a standardized 
tabular format and to discuss certain qualitative features of its NSFR 
calculation. These disclosures, which are described in further detail 
in section V of this Supplementary Information section, would enable 
market participants to assess and compare the liquidity profiles of 
covered companies and non-U.S. banking organizations.
    The proposed NSFR requirement would take effect on January 1, 2018.
2. Scope of Application of the Proposed Rule
    The proposed NSFR requirement would apply to the same large and 
internationally active banking organizations that are subject to the 
LCR rule: (1) Bank holding companies, savings and loan holding 
companies without significant commercial or insurance operations, and 
depository institutions that, in each case, have $250 billion or more 
in total consolidated assets or $10 billion or more in on-balance sheet 
foreign exposure,\19\ and (2) depository institutions with $10 billion 
or more in total consolidated assets that are consolidated subsidiaries 
of such bank holding companies and savings and loan holding companies.
---------------------------------------------------------------------------

    \19\ Total consolidated assets for the purposes of the proposed 
rule would be as reported on a banking organization's most recent 
year-end Consolidated Reports of Condition and Income or 
Consolidated Financial Statements for Bank Holding Companies, 
Federal Reserve Form FR Y-9C. Foreign exposure data would be 
calculated in accordance with the Federal Financial Institutions 
Examination Council 009 Country Exposure Report.
---------------------------------------------------------------------------

    The proposed rule would apply to banking organizations that tend to 
have larger and more complex liquidity risk profiles than smaller and 
less internationally active banking organizations. While banking 
organizations of any size can face threats to their safety and 
soundness based on an unstable funding profile, covered companies' 
scale, scope, and complexity require heightened measures to manage 
their liquidity risk. In addition, covered companies with total 
consolidated assets of $250 billion or more can pose greater risks to 
U.S. financial stability than smaller banking organizations because of 
their size, the scale and breadth of their activities, and their 
interconnectedness with the financial sector. Consequently, threats to 
the availability of funding to larger firms pose greater risks to the 
financial system and economy. Likewise, the foreign exposure threshold 
identifies firms with a significant international presence, which may 
also present risks to financial stability for similar reasons. By 
promoting stable funding profiles for large, interconnected 
institutions, the proposed rule would strengthen the safety and 
soundness of covered companies and promote a more resilient U.S. 
financial system and global financial system.
    The proposed rule would also apply the NSFR requirement to 
depository institutions that are the consolidated subsidiaries of 
covered companies and that have $10 billion or more in total 
consolidated assets.\20\ These large depository institution 
subsidiaries can play a significant role in covered companies' funding 
structures and operations, and present a larger exposure to the FDIC's 
Deposit Insurance Fund than smaller insured institutions because of the 
greater volume of their deposit-taking and lending activities. To 
reduce the potential impacts of a liquidity event on the safety and 
soundness of such large depository institution subsidiaries, the 
proposed rule would require that such entities independently have 
sufficient stable funding.
---------------------------------------------------------------------------

    \20\ Pursuant to the International Banking Act (IBA), 12 U.S.C. 
3101 et seq., and OCC regulation, 12 CFR 28.13(a)(1), a Federal 
branch or agency regulated and supervised by the OCC has the same 
rights and responsibilities as a national bank operating at the same 
location. Thus, as a general matter, Federal branches and agencies 
are subject to the same laws as national banks. The IBA and the OCC 
regulation state, however, that this general standard does not apply 
when the IBA or other applicable law provides other specific 
standards for Federal branches or agencies or when the OCC 
determines that the general standard should not apply. This proposal 
would not apply to Federal branches and agencies of foreign banks 
operating in the United States. At this time, these entities have 
assets that are substantially below the proposed $250 billion asset 
threshold for applying the proposed liquidity standard to large and 
internationally active banking organizations. As part of its 
supervisory program for Federal branches and agencies of foreign 
banks, the OCC reviews liquidity risks and takes appropriate action 
to limit such risks in those entities.
---------------------------------------------------------------------------

    Consistent with the LCR rule, the proposed rule would not apply to 
depository institution holding companies with large insurance 
operations or savings and loan holding companies with large commercial 
operations because their business models and liquidity risks differ 
significantly from those of other covered companies.\21\ The proposed 
rule would also not apply to nonbank financial companies designated by 
the Financial Stability Oversight Council (Council) for Board 
supervision (nonbank financial companies).\22\ However, the Board may 
apply an NSFR requirement and disclosure requirements to these 
companies in the future by separate rule or order. The Board would 
assess the business model, capital structure, and risk profile of a 
nonbank financial company to determine whether, and if so how, the 
proposed NSFR requirement should apply to a nonbank financial company 
or to a category of nonbank financial companies, as appropriate. The 
Board would provide nonbank financial companies, either collectively or 
individually, with notice and opportunity to comment prior to applying 
an NSFR requirement.
---------------------------------------------------------------------------

    \21\ The proposed rule would not apply to: (i) A grandfathered 
unitary savings and loan holding company (as described in section 
10(c)(9)(A) of the Home Owners' Loan Act, 12 U.S.C. 1467a(c)(9)(A)) 
that derives 50 percent or more of its total consolidated assets or 
50 percent of its total revenues on an enterprise-wide basis from 
activities that are not financial in nature under section 4(k) of 
the Bank Holding Company Act (12 U.S.C. 1843(k)); (ii) a top-tier 
bank holding company or savings and loan holding company that is an 
insurance underwriting company; or (iii) a top-tier bank holding 
company or savings and loan holding company that has 25 percent or 
more of its total consolidated assets in subsidiaries that are 
insurance underwriting companies. For purposes of (iii), the company 
must calculate its total consolidated assets in accordance with GAAP 
or estimate its total consolidated assets, subject to review and 
adjustment by the Board.
    \22\ See 12 U.S.C. 5323.
---------------------------------------------------------------------------

    The proposed rule would also not apply to the U.S. operations of 
foreign banking organizations or intermediate holding companies 
required to be formed under the Board's Regulation YY that do not 
otherwise meet the requirements to be a covered company (for example, 
as a U.S. bank holding company with more than $250 billion in total 
consolidated assets). The Board anticipates implementing an NSFR 
requirement through a future, separate rulemaking for the U.S. 
operations of foreign banking organizations with $50 billion or more in 
combined U.S. assets.
    The proposed rule would not apply to a ``bridge financial company'' 
or a subsidiary of a ``bridge financial

[[Page 35129]]

company,'' a ``new depository institution,'' or a ``bridge depository 
institution,'' as those terms are used in the FDI Act in the resolution 
context.\23\ Requiring these entities to maintain a minimum NSFR may 
constrain the FDIC's ability to resolve a depository institution or its 
affiliates in an orderly manner.
---------------------------------------------------------------------------

    \23\ See 12 U.S.C. 1813(i) and 12 U.S.C. 5381(a)(3).
---------------------------------------------------------------------------

    The Board is also proposing to implement a modified version of the 
NSFR requirement for bank holding companies and savings and loan 
holding companies without significant insurance or commercial 
operations that, in each case, have $50 billion or more, but less than 
$250 billion, in total consolidated assets and less than $10 billion in 
total on-balance sheet foreign exposure. Modified NSFR holding 
companies are large financial companies that have sizable operations in 
banking, brokerage, or other financial activities, as discussed in 
section IV of this Supplementary Information section. Although they 
generally are smaller in size, less complex in structure, and less 
reliant on riskier forms of funding than covered companies, these 
modified NSFR holding companies are nevertheless important providers of 
credit in the U.S. economy. The Board is therefore proposing a form of 
the NSFR requirement that is tailored to the less risky liquidity 
profile of these companies.
    The agencies would each reserve the authority to apply the proposed 
rule to additional companies if the application of the NSFR requirement 
would be appropriate in light of a company's asset size, complexity, 
risk profile, scope of operations, affiliation with covered companies, 
or risk to the financial system. A covered company would remain subject 
to the proposed NSFR requirement until its appropriate Federal banking 
agency determines in writing that application of the rule to the 
company is not appropriate in light of these same factors. The agencies 
would also reserve the authority to require a covered company to 
maintain an ASF amount greater than otherwise required under the 
proposed rule, or to take any other measure to improve the covered 
company's funding profile, if the appropriate Federal banking agency 
determines that the covered company's NSFR requirement under the 
proposed rule is not commensurate with its liquidity risks.
    A company that becomes subject to the proposed rule pursuant to 
Sec.  __.1(b)(1) after the effective date would be required to comply 
with the proposed NSFR requirement beginning on April 1 of the 
following year. For example, if a bank holding company becomes subject 
to the proposed rule on December 31, 2020, because it reports on its 
year-end Consolidated Financial Statements for Holding Companies (FR Y-
9C) that it has total consolidated assets of $251 billion, that bank 
holding company would be required to begin complying with the proposed 
NSFR requirement on April 1, 2021.
    Question 1: Would the proposed one-quarter transition period 
provide sufficient time for a covered company to make any needed 
adjustments to its systems to come into compliance with the proposed 
rule's requirements? What alternative transition period, if any, would 
be more appropriate and why? What would be the benefits of providing 
covered companies with a longer or shorter transition period?

D. Definitions

    The proposed rule would share definitions with the LCR rule and 
would be adopted and codified in the same part of the Code of Federal 
Regulations as the LCR rule for each of the agencies.\24\ In connection 
with the proposed rule, the agencies are proposing to revise certain of 
the existing definitions in Sec.  __.3 of the LCR rule and to add 
certain new definitions. This part of the Supplementary Information 
section discusses these definitions.
---------------------------------------------------------------------------

    \24\ 12 CFR part 50 (OCC), 12 CFR part 249 (Board), and 12 CFR 
part 329 (FDIC).
---------------------------------------------------------------------------

1. Revisions to Existing Definitions
    The proposed rule would amend the existing definition of 
``calculation date'' in Sec.  __.3 of the LCR rule to define 
``calculation date'' for purposes of the NSFR requirement as any date 
on which a covered company calculates its NSFR under Sec.  __.100.
    The existing definition of ``collateralized deposit'' in Sec.  __.3 
of the LCR rule includes those fiduciary deposits that a covered 
company is required by federal law, as applicable to national banks and 
Federal savings associations, to collateralize using its own assets. 
The LCR rule excludes collateralized deposits from the set of secured 
funding transactions that a covered company is required to unwind in 
its calculation of adjusted liquid asset amounts under Sec.  __.21 of 
the LCR rule. To provide consistent treatment for covered companies 
subject to state laws that require collateralization of deposits, the 
proposed rule would amend the definition of ``collateralized deposit'' 
to include those deposits collateralized as required under state law, 
as applicable to state member and nonmember banks and state savings 
associations. In addition, the proposed rule would amend the definition 
of ``collateralized deposit'' to include those fiduciary deposits held 
at a covered company for which a depository institution affiliate of 
the covered company is a fiduciary and that the covered company has 
collateralized pursuant to 12 CFR 9.10(c) (for national banks) or 12 
CFR 150.310 (for Federal savings associations). Although a covered 
company may not be required under applicable law to collateralize 
fiduciary deposits held at an affiliated depository institution, if the 
covered company decides to collateralize those deposits, then they 
should also be excluded from the unwind of applicable secured funding 
transactions.
    The existing definition of ``committed'' in Sec.  __.3 of the LCR 
rule provides the criteria under which a credit facility or liquidity 
facility would be considered committed for purposes of the LCR rule, 
and thus receive an outflow rate as specified in Sec.  __.32(e). The 
definition provides that a credit facility or liquidity facility is 
committed if (1) the covered company may not refuse to extend credit or 
funding under the facility or (2) the covered company may refuse to 
extend credit under the facility (to the extent permitted under 
applicable law) only upon the satisfaction or occurrence of one or more 
specified conditions not including change in financial condition of the 
borrower, customary notice, or administrative conditions.
    To more clearly capture the intended meaning of ``committed,'' the 
proposed rule would amend the definition to state that a credit or 
liquidity facility is committed if it is not unconditionally cancelable 
under the terms of the facility. The proposed rule would define 
``unconditionally cancelable,'' consistent with the agencies' risk-
based capital rules, to mean that a covered company may refuse to 
extend credit under the facility at any time, including without cause 
(to the extent permitted under applicable law).\25\ For example, a 
credit or liquidity facility that only permits a covered company to 
refuse to extend credit upon the occurrence of a specified event (such 
as a material adverse change) would not be considered unconditionally 
cancelable, and therefore the facility would be considered committed 
under the proposed definition. Conversely, a credit or liquidity 
facility that the covered company may cancel without

[[Page 35130]]

cause would not be considered committed because the covered company may 
refuse to extend credit under the facility at any time. For example, 
home equity lines of credit and credit cards lines that are cancelable 
without cause (to the extent permitted under applicable law), as is 
generally the case, would not be considered committed under the 
proposed amendment to the definition.
---------------------------------------------------------------------------

    \25\ See 12 CFR 3.2 (OCC), 12 CFR 217.2 (Board), and 12 CFR 
324.2 (FDIC).
---------------------------------------------------------------------------

    The proposed rule would revise the definition of ``covered nonbank 
company'' to clarify that if the Board requires a company designated by 
the Council for Board supervision to comply with the LCR rule or the 
proposed rule, it will do so through a rulemaking that is separate from 
the LCR rule and this proposed rule or by issuing an order.
    The existing definition of ``operational deposit'' provides the 
parameters under which funding of a covered company would be considered 
an operational deposit for purposes of the LCR rule, meaning that the 
funding amount is necessary for the provision of operational services, 
as defined in Sec.  __.3 of the LCR rule. While the LCR rule defines 
the term ``operational deposit'' to refer only to funding of a company, 
the proposed rule would use the term to refer to both funding and 
lending. Accordingly, the proposed rule would amend the definition of 
``operational deposit'' to include both deposits received by the 
covered company in connection with operational services provided by the 
covered company and deposits placed by the covered company in 
connection with operational services received by the covered company. 
The proposed rule would also amend the definition of ``operational 
deposit'' to clarify that only deposits, as defined in Sec.  __.3 of 
the LCR rule, can qualify as operational deposits. Other forms of 
funding from, or provided to, wholesale customers or counterparties 
(e.g., longer-term unsecured funding) would not qualify as operational 
deposits. Because operational deposits are limited to accounts that 
facilitate short-term transactional cash flows associated with 
operational services, operational deposits also should only have short-
term maturities, falling within the proposed rule's less-than-6-month 
maturity category and generally within the LCR rule's 30 calendar-day 
period. Notwithstanding the proposed revisions to this definition, the 
treatment of operational deposits under Sec. Sec.  __.32 and __.33 of 
the LCR rule would remain the same.
    Finally, the proposed rule would revise the definitions of 
``secured funding transaction'' and ``secured lending transaction'' to 
clarify that the obligations referenced in those definitions must be 
secured by a lien on securities or loans (rather than secured by a lien 
on other assets), that such transactions are only those with wholesale 
customers or counterparties, and that securities issued or owned by a 
covered company do not constitute secured funding or lending 
transactions of the covered company. The treatment of secured 
transactions in the LCR rule, which adjusts inflow and outflow rates 
based on the relative liquidity of the collateral, would be appropriate 
only for transactions where the collateral is securities or loans 
because these forms of collateral are generally more liquid than 
others. For example, inflows in a stressed environment associated with 
lending secured by collateral types that are not generally traded in 
liquid markets, such as property, plant, and equipment, are typically 
based on the nature of the counterparty rather than the collateral, 
thus making the liquidity risk associated with such arrangements more 
akin to that of unsecured lending. Said another way, lending secured by 
property, plant, and equipment should not receive a 100 percent inflow 
rate; rather, the inflow should depend on the characteristics of the 
borrower, which more accurately reflects the likelihood a covered 
company will roll over such a loan during a period of significant 
stress. By the same reasoning, the definition of ``unsecured wholesale 
funding'' would be revised to include transactions that are not secured 
by securities or loans, but that may be secured by other forms of 
collateral (such as property, plant, and equipment), which are 
generally less liquid.
    By limiting the definitions of ``secured funding transaction'' and 
``secured lending transaction'' to those transactions with wholesale 
customers or counterparties, the proposed rule would clarify that 
funding and lending transactions with a retail customer or 
counterparty, even if collateralized, are subject to the retail 
treatment under the LCR rule and the proposed rule. For the same 
reasons as discussed above, the inflows and outflows associated with 
funding provided by a retail customer or counterparty, even if 
collateralized, are more dependent on the retail nature of the 
counterparty and not any collateral that secures the funding. Lastly, 
by excluding securities from these definitions, the proposed rule would 
clarify that securities issued by a covered company or owned by a 
covered company are treated based on the provisions applicable to 
securities in the LCR rule and the proposed rule. For example, 
securities issued through conduit structures that are consolidated on a 
covered company's balance sheet would not be considered secured funding 
transactions but rather, would be considered securities issued by the 
covered company.
    Question 2: What modifications, if any, should be made to the 
proposed revised definitions of ``calculation date,'' ``collateralized 
deposits,'' ``committed,'' ``covered nonbank company,'' ``operational 
deposit,'' ``secured funding transaction,'' ``secured lending 
transaction,'' and ``unsecured wholesale funding'' and why? What, if 
any, are the unintended consequences to the operation of the LCR rule 
and the proposed rule that may result from the proposed revisions to 
these definitions?
    Question 3: Given that the terms ``unsecured wholesale funding'' 
and, as discussed below, ``unsecured wholesale lending'' would include 
funding and lending that is secured by certain less liquid forms of 
collateral, would it be clearer to use different terminology for these 
terms and ``secured funding transaction'' and ``secured lending 
transaction?''
    Question 4: For the definitions of ``secured funding transaction'' 
and ``secured lending transaction,'' what, if any, assets beyond 
securities and loans should be included as qualifying collateral 
because they are sufficiently liquid to be relevant in assigning inflow 
and outflow rates to such transactions under the LCR rule? What, if 
any, securities or loans should be excluded from the qualifying 
collateral because they are not sufficiently liquid and why?
    Question 5: Is the term ``unsecured wholesale lending'' 
appropriately defined by reference to a liability or obligation of a 
wholesale customer or counterparty? If not, in what ways should the 
definition be modified and why? What specific assets, if any, should 
be, but are not currently, included or excluded from the definition of 
``unsecured wholesale lending'' for purposes of the NSFR? Likewise, 
what specific liabilities, if any, should be, but are not currently, 
included or excluded from the definition of ``unsecured wholesale 
funding'' for purposes of the NSFR? For example, what assets or 
liabilities within these terms, if any, such as a receivable based on 
an insurance claim or a payable for services rendered by a wholesale 
service provider, should be assigned different RSF and ASF

[[Page 35131]]

factors \26\ than other assets or liabilities within these terms?
---------------------------------------------------------------------------

    \26\ See section II.D and II.C of this Supplementary Information 
section for discussion of assignment of RSF and ASF factors, 
respectively.
---------------------------------------------------------------------------

    Question 6: Given that the definitions in the LCR rule would apply 
to the proposed rule and the Board's GSIB surcharge rule, are there 
other definitions or terms, in addition to those noted above, that the 
agencies should amend and why? For example, should the definition of 
``liquid and readily-marketable'' be amended, including any of its 
criteria, to provide more clarity or to ease operational burden, given 
its implication on the determination of HQLA and HQLA treatment under 
the proposed NSFR requirement, and if so, why? Commenters are invited 
to provide suggested language to amend any definitions.
2. New Definitions
    The proposed rule would add several new defined terms. The proposed 
rule would define ``carrying value'' to mean the value on a covered 
company's balance sheet of an asset, NSFR regulatory capital element, 
or NSFR liability, as determined in accordance with U.S. generally 
accepted accounting principles (GAAP). The proposed rule includes this 
definition because RSF and ASF factors generally would be applied to 
the carrying value of a covered company's assets, NSFR regulatory 
capital elements, and NSFR liabilities. By relying on values based on 
GAAP, the proposed rule would ensure consistency in the application of 
the NSFR requirement across covered companies and limit operational 
burdens to comply with the proposed rule because covered companies 
already prepare financial reports in accordance with GAAP. This 
definition would be consistent with the definition used in the 
agencies' regulatory capital rules.\27\
---------------------------------------------------------------------------

    \27\ See 12 CFR 3.2 (OCC), 12 CFR 217.2 (Board), and 12 CFR 
324.2 (FDIC).
---------------------------------------------------------------------------

    The proposed rule would define ``encumbered'' using the criteria 
for an unencumbered asset in Sec.  __.22(b) of the LCR rule. The 
proposed definition does not include any substantive changes to the 
concept of encumbrance included in the LCR rule. The proposed rule 
would also use the defined term in place of the criteria enumerated in 
Sec.  __.22(b) of the LCR rule. The addition of this definition is 
necessary to apply the concept of encumbrance in Sec.  __.106(c) and 
(d) of the proposed rule, as discussed below.
    The proposed rule would define two new related terms, ``NSFR 
regulatory capital element'' and ``NSFR liability.'' The proposed rule 
would define ``NSFR regulatory capital element'' to mean any capital 
element included in a covered company's common equity tier 1 capital, 
additional tier 1 capital, and tier 2 capital, as those terms are 
defined in the agencies' risk-based capital rules, prior to the 
application of capital adjustments or deductions set forth in the 
agencies' risk-based capital rules.\28\ This definition would exclude 
any debt or equity instrument that does not meet the criteria for 
additional tier 1 or tier 2 capital instruments in Sec.  __.22 of the 
agencies' risk-based capital rules or that is being phased out of tier 
1 or tier 2 capital pursuant to subpart G of the agencies' risk-based 
capital rules.\29\ The term ``NSFR regulatory capital element'' would 
include both equity and liabilities under GAAP that meet the 
requirements of the definition. This definition of ``NSFR regulatory 
capital element'' would generally align with the definition of 
regulatory capital in the agencies' risk-based capital rules, but would 
not include capital deductions and adjustments.\30\ Because the 
proposed rule would require assets that are capital deductions (such as 
goodwill) to be fully supported by stable funding, as discussed in 
section II.D.3.a.viii of this SUPPLEMENTARY INFORMATION section below, 
deducting the value of these assets from a covered company's NSFR 
regulatory capital elements would understate a company's NSFR.
---------------------------------------------------------------------------

    \28\ See 12 CFR part 3 (OCC), 12 CFR part 217 (Board), and 12 
CFR part 324 (FDIC).
    \29\ Tier 2 capital instruments that have a remaining maturity 
of less than one year are not included in regulatory capital. See 12 
CFR 3.20(d)(1)(iv) (OCC), 12 CFR 217.20(d)(1)(iv) (Board), and 12 
CFR 324.20(d)(1)(iv) (FDIC); see also 12 CFR 3.300 (OCC), 12 CFR 
217.300 (Board), and 12 CFR 324.300 (FDIC).
    \30\ The proposed definition of ``NSFR regulatory capital 
element'' would include allowances for loan and lease losses (ALLL) 
to the same extent as under the risk-based capital rules. See 12 CFR 
3.20(d)(3) (OCC), 12 CFR 217.20(d)(3) (Board), and 12 CFR 
324.20(d)(3) (FDIC).
---------------------------------------------------------------------------

    The proposed rule would define ``NSFR liability'' to mean any 
liability or equity reported on a covered company's balance sheet that 
is not an NSFR regulatory capital element. The term ``NSFR liability'' 
primarily refers to balance sheet liabilities but may include equity 
because some equity may not qualify as an NSFR regulatory capital 
element. The definitions of ``NSFR liability'' and ``NSFR regulatory 
capital element,'' taken together, should capture the entirety of the 
liability and equity side of a covered company's balance sheet.
    The proposed rule would define ``QMNA netting set'' to refer to a 
group of derivative transactions with a single counterparty that is 
subject to a qualifying master netting agreement,\31\ and is netted 
under the qualifying master netting agreement.\32\ QMNA netting sets 
would include, in addition to non-cleared derivative transactions, a 
group of cleared derivative transactions (that is, a group of 
derivative transactions that have been entered into with, or accepted 
by, a central counterparty (CCP)) if the applicable governing rules for 
the group of cleared derivative transactions meet the definition of a 
qualifying master netting agreement. The proposed rule would use the 
term ``QMNA netting set'' in the calculation of a covered company's 
stable funding requirement attributable to its derivative transactions, 
as discussed in section II.E of this Supplementary Information section.
---------------------------------------------------------------------------

    \31\ Each QMNA netting set must meet each of the conditions 
specified in the definition of ``qualifying master netting 
agreement'' under Sec.  __.3 of the LCR rule and the operational 
requirements under Sec.  __.4(a) of the LCR rule.
    \32\ A qualifying master netting agreement may identify a single 
QMNA netting set (for which the agreement creates a single net 
payment obligation and for which collection and posting of margin 
applies on an aggregate net basis) or it may establish multiple QMNA 
netting sets, each of which would be separate from and exclusive of 
any other QMNA netting set or derivative transaction covered by the 
qualifying master netting agreement.
---------------------------------------------------------------------------

    The proposed rule would define ``unsecured wholesale lending'' as a 
liability or general obligation of a wholesale customer or counterparty 
to the covered company that is not a secured lending transaction. 
Although the term ``unsecured wholesale funding'' is defined in the LCR 
rule, ``unsecured wholesale lending'' is not. The proposed rule's NSFR 
requirement would require a covered company to hold stable funding 
against unsecured wholesale lending, so a definition of this term is 
included in the proposed rule.
    Question 7: In what ways, if any, should the agencies modify the 
newly proposed definitions of ``carrying value,'' ``encumbered,'' 
``NSFR liability,'' ``NSFR regulatory capital element,'' ``QMNA netting 
set,'' and ``unsecured wholesale lending'' and why?
    Question 8: What other terms, if any, should the agencies define 
and why?
    Question 9: In the definition of ``NSFR regulatory capital 
element,'' what adjustments to, or deductions from, regulatory capital, 
if any, should the agencies include in NSFR regulatory capital elements 
and why? For example, should the NSFR regulatory capital elements 
include adjustments or deductions for changes in the fair value of a 
liability due to a change in a

[[Page 35132]]

covered company's own credit risk? If so, why?

E. Effective Dates

    As noted, the proposed NSFR requirement would be effective as of 
January 1, 2018. This effective date should provide covered companies 
with sufficient time to adjust to the requirements of the proposal, 
including to make any changes to ensure their assets, derivative 
exposures, and commitments are stably funded and to adjust information 
systems to calculate and monitor their NSFR. The NSFR is a balance-
sheet metric, and its calculations would generally be based on the 
carrying value, as determined under GAAP, of a covered company's 
assets, liabilities, and equity. As a result, covered companies should 
be able to leverage current financial reporting systems to comply with 
the NSFR requirement.
    The revisions to definitions currently used in the LCR rule and 
that would be used in the proposed rule, as discussed in section I.D.1 
of this SUPPLEMENTARY INFORMATION section, 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. 
Because these revisions would enhance the clarity of certain 
definitions used in the LCR rule, the agencies are proposing that they 
become effective sooner than the proposed NSFR effective date.
    Question 10: Would the proposed effective date provide sufficient 
time for covered companies to make any needed adjustments to their 
systems for compliance with the proposed rule's requirements and to 
ensure that their assets, derivative exposures, and commitments are 
stably funded? What alternative effective date, if any, would be more 
appropriate for the proposed NSFR requirement and why? What would be 
the benefits of providing covered companies with a longer or shorter 
period of time to comply with the proposed rule?
    Question 11: What alternative effective date, if any, would be more 
appropriate for the proposed revisions to the existing definitions used 
in the LCR rule, and why?

II. Minimum Net Stable Funding Ratio

    As noted above, a covered company would calculate its NSFR by 
dividing its ASF amount by its RSF amount. The proposed rule would 
require a covered company to maintain an NSFR equal to or greater than 
1.0 on an ongoing basis. As a result, while the proposed rule would 
require a covered company that is a depository institution holding 
company to calculate its NSFR on a quarterly basis in order to comply 
with the proposed rule's public disclosure requirements (as discussed 
in section V of this SUPPLEMENTARY INFORMATION section), a covered 
company would need to monitor its funding profile on an ongoing basis 
to ensure compliance with the NSFR requirement. If a covered company's 
funding profile materially changes intra-quarter, the agencies expect 
the company to be able to calculate its NSFR to determine whether it 
remains compliant with the NSFR requirement, consistent with the 
notification requirements under Sec.  __.110(a) and discussed in 
section III of this SUPPLEMENTARY INFORMATION section.
    The following discussion describes the calculation of a covered 
company's ASF amount and RSF amount.

A. Rules of Construction

    The proposed rule would include rules of construction in Sec.  
__.102 relating to how items recorded on a covered company's balance 
sheet would be reflected in the covered company's ASF and RSF amounts.
1. Balance-Sheet Metric
    As noted above, a covered company would generally determine its ASF 
and RSF amounts based on the carrying values of its assets, NSFR 
regulatory capital elements, and NSFR liabilities as determined under 
GAAP. Under GAAP, certain transactions and exposures are not recorded 
on the covered company's balance sheet. The proposed rule would include 
a rule of construction in Sec.  __.102(a) specifying that, unless 
otherwise provided, a transaction or exposure that is not recorded on 
the balance sheet of a covered company would not be assigned an ASF or 
RSF factor and, conversely, a transaction or exposure that is recorded 
on the balance sheet of the covered company would be assigned an ASF or 
RSF factor. While the proposed rule would generally rely on balance 
sheet carrying values, it would differ in some cases, such as with 
respect to determination of a covered company's stable funding 
requirements relating to derivative transactions, as described in 
section II.E of this SUPPLEMENTARY INFORMATION section, and the undrawn 
amount of commitments, as described in section II.D.3 of this 
SUPPLEMENTARY INFORMATION section.
2. Netting of Certain Transactions
    The proposed rule would include a rule of construction in Sec.  
__.102(b) that describes the treatment of receivables and payables that 
are associated with secured funding transactions, secured lending 
transactions, and asset exchanges with the same counterparty that the 
covered company has netted against each other. For purposes of 
determining the carrying value of these transactions, GAAP permits a 
covered company, when the relevant accounting criteria are met, to 
offset the gross value of receivables due from a counterparty under 
secured lending transactions by the amount of payments due to the same 
counterparty under secured funding transactions (GAAP offset 
treatment). The proposed rule would require a covered company to 
satisfy both these accounting criteria and the criteria applied in 
Sec.  __.102(b) before it could treat the applicable receivables and 
payables on a net basis for the purposes of the NSFR requirement.
    Section Sec.  __.102(b) would apply the netting criteria specified 
in the agencies' supplementary leverage ratio rule (SLR rule).\33\ 
These criteria require, first, that the offsetting transactions have 
the same explicit final settlement date under their governing 
agreements. Second, the criteria require that the right to offset the 
amount owed to the counterparty with the amount owed by the 
counterparty is legally enforceable in the normal course of business 
and in the event of receivership, insolvency, liquidation, or similar 
proceeding. Third, the criteria require that under the governing 
agreements, the counterparties intended to settle net, settle 
simultaneously, or settle according to a process that is the functional 
equivalent of net settlement (that is, the cash flows of the 
transactions are equivalent, in effect, to a single net amount on the 
settlement date), where the transactions are settled through the same 
settlement system, the settlement arrangements are supported by cash or 
intraday credit facilities intended to ensure that settlement of the 
transactions will occur by the end of the business day, and the 
settlement of the underlying securities does not interfere with the net 
cash settlement.
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    \33\ 12 CFR 3.10(c)(4)(ii)(E)(1) through (3) (OCC), 12 CFR 
217.10(c)(4)(ii)(E)(1) through (3) (Board), and 12 CFR 
324.10(c)(4)(ii)(E)(1) through (3) (FDIC).
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    If a covered company entered into secured funding and secured 
lending transactions with the same counterparty and applied the GAAP 
offset treatment when recording the carrying value of these 
transactions, but the transactions did not meet the criteria in Sec.  
__.102(b), the covered company would be required to assign the 
appropriate RSF and ASF factors to the gross value of the receivables 
and payables associated with these

[[Page 35133]]

transactions, rather than to the net value. Thus, the gross value of 
these receivables or payables would be treated as if they were included 
on the balance sheet of the covered company. If the criteria in Sec.  
__.102(b) are not met, the cash flows associated with the maturities of 
these secured lending and secured funding transactions may not align 
and, therefore, the proposed rule would treat these transactions on an 
individual basis when assigning them RSF and ASF factors. The proposed 
rule's incorporation of these netting criteria would also maintain 
consistency with covered companies' treatment of offset receivables and 
payables under the SLR rule.
3. Treatment of Securities Received in an Asset Exchange by a 
Securities Lender
    The proposed rule would include a rule of construction in Sec.  
__.102(c) specifying that when a covered company, acting as a 
securities lender, receives a security in an asset exchange and has not 
rehypothecated the security received, the covered company is not 
required to assign an RSF factor to the security it has received and is 
not permitted to assign an ASF factor to any liability to return the 
security. The requirements of Sec.  __.102(c), which would be 
consistent with the treatment of security-for-security transactions 
under the SLR rule,\34\ are intended to neutralize differences across 
different accounting frameworks and maintain consistency across covered 
companies. Because the proposed rule would not require stable funding 
for the securities received, it would not treat the covered company's 
obligation to return these securities as stable funding and would not 
assign an ASF factor to this obligation. If, however, the covered 
company, acting as the securities lender, sells or rehypothecates the 
securities received, the proposed rule would require the covered 
company to assign the appropriate RSF factor or factors under Sec.  
__.106 to the proceeds of the sale or, in the case of a pledge or 
rehypothecation, to the securities themselves if they remain on the 
covered company's balance sheet.\35\ Similarly, the covered company 
would assign a corresponding ASF factor to the NSFR liability 
associated with the asset exchange, for example, an obligation to 
return the security received.
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    \34\ 12 CFR 3.10(c)(4)(ii)(A) (OCC), 12 CFR 217.10(c)(4)(ii)(A) 
(Board), and 12 CFR 324.10(c)(4)(ii)(A) (FDIC).
    \35\ See sections II.D.3.c and II.D.3.d of this Supplementary 
Information section. If the collateral securities received by the 
securities lender have been rehypothecated but remain on the covered 
company's balance sheet, the collateral securities would be assigned 
an RSF factor under Sec.  __.106(c) to reflect the encumbrance. If 
the collateral securities have been rehypothecated but do not remain 
on the covered company's balance sheet, the covered company may be 
required to apply an additional encumbrance to the asset it has 
provided in the asset exchange, pursuant to Sec.  __.106(d).
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B. Determining Maturity

    Under the proposed rule, the ASF and RSF factors assigned to a 
covered company's NSFR liabilities and assets would depend in part on 
the maturity of each NSFR liability or asset. The proposed rule would 
incorporate the maturity assumptions in Sec.  __.31(a)(1) and (2) of 
the LCR rule to determine the maturities of a covered company's NSFR 
liabilities and assets. These LCR rule provisions generally require a 
covered company to identify the most conservative maturity date when 
calculating inflow and outflow amounts--that is, the earliest possible 
date for an outflow from a covered company and the latest possible date 
for an inflow to a covered company. These provisions also generally 
require covered companies to take the most conservative approach when 
determining maturity with respect to any notice periods and with 
respect to any options, either explicit or embedded, that may modify 
maturity dates.
    Because the proposed rule would incorporate the LCR rule's maturity 
assumptions, it would similarly require a covered company to identify 
the maturity date of its NSFR liabilities and assets in the most 
conservative manner. Specifically, the proposed rule would require a 
covered company to apply the earliest possible maturity date to an NSFR 
liability (which would be assigned an ASF factor) and the latest 
possible maturity date to an asset (which would be assigned an RSF 
factor). The proposed rule would also require a covered company to take 
the most conservative approach when determining maturity with respect 
to any notice periods and with respect to any options, either explicit 
or embedded, that may modify maturity dates. For example, a covered 
company would be required to assume that an option to reduce the 
maturity of an NSFR liability and an option to extend the maturity of 
an asset will be exercised.
    The proposed rule would treat an NSFR liability that has an 
``open'' maturity (i.e., the NSFR liability has no maturity date and 
may be closed out on demand) as maturing on the day after the 
calculation date. For example, an ``open'' repurchase transaction or a 
demand deposit placed at a covered company would be treated as maturing 
on the day after the calculation date. To ensure consistent use of 
terms in the proposed rule and LCR rule and to avoid ambiguity between 
perpetual instruments and transactions (i.e., the instrument or 
transaction has no contractual maturity date and may not be closed out 
on demand) and open instruments and transactions, the proposed rule 
would amend the LCR rule to use the term ``open'' instead of using the 
phrase ``has no maturity date.'' This proposed change would have no 
substantive impact on the LCR rule. The proposed rule would treat a 
perpetual NSFR liability (such as perpetual securities issued by a 
covered company) as maturing one year or more after the calculation 
date.
    The proposed rule would treat each principal amount due under a 
transaction, such as separate principal payments due under an 
amortizing loan, as a separate transaction for which the covered 
company would be required to identify the date when the payment is 
contractually due and apply the appropriate ASF or RSF factor based on 
that maturity date. This proposed treatment would ensure that a covered 
company's ASF and RSF amounts reflect the actual timing of a company's 
cash flows and obligations, rather than treating all principal payments 
for a transaction as though each were due on the same date (e.g., the 
last contractual principal payment date of the transaction). For 
example, if a loan from a counterparty to a covered company requires 
two contractual principal payments, the first due less than six months 
from the calculation date and the second due one year or more from the 
calculation date, only the principal amount that is due one year or 
more from the calculation date would be assigned a 100 percent ASF 
factor, which is the factor assigned to liabilities that have a 
maturity of one year or more from the calculation date. The liability 
arising from the principal payment due within six months represents a 
less stable source of funding and would therefore be assigned a lower 
ASF factor (for example, a zero percent ASF factor if the loan is from 
a financial sector entity, as discussed in section II.C.3.e of this 
SUPPLEMENTARY INFORMATION section).
    For deferred tax liabilities that have no maturity date, the 
maturity date under the proposed rule would be the first calendar day 
after the date on which the deferred tax liability could be realized.

[[Page 35134]]

    The proposed rule would not apply the LCR rule's maturity 
assumptions to a covered company's NSFR regulatory capital elements. 
Unlike NSFR liabilities, which have varying maturities, NSFR regulatory 
capital elements are longer-term by definition, and as such, the 
proposed rule would assign a 100 percent ASF factor to all NSFR 
regulatory capital elements.

C. Available Stable Funding

    Under the proposed rule, a covered company's ASF amount would 
measure the stability of its equity and liabilities. An ASF amount that 
equals or exceeds a covered company's RSF amount would be indicative of 
a stable funding profile over the NSFR's one-year time horizon.
1. Calculation of ASF Amount
    Under Sec.  __.103 of the proposed rule, a covered company's ASF 
amount would equal the sum of the carrying values of the covered 
company's NSFR regulatory capital elements and NSFR liabilities, each 
multiplied by the ASF factor assigned in Sec.  __.104 or Sec.  
__.107(c). As described below, these ASF factors would be assigned 
based on the stability of each category of NSFR liability or NSFR 
regulatory capital element over the NSFR's one-year time horizon.
    As discussed in section II.E of this SUPPLEMENTARY INFORMATION 
section, certain NSFR liabilities relating to derivative transactions 
are not considered stable funding for purposes of a covered company's 
NSFR calculation and are assigned a zero percent ASF factor under Sec.  
__.107(c). In addition, pursuant to Sec.  __.108 of the proposed rule, 
a covered company may include in its ASF amount the available stable 
funding of a consolidated subsidiary only to the extent that the 
funding of the subsidiary supports the RSF amount associated with the 
subsidiary's own assets or is readily available to support RSF amounts 
associated with the assets of the covered company outside the 
consolidated subsidiary. This restriction is discussed in more detail 
in section II.F of this SUPPLEMENTARY INFORMATION section.
2. ASF Factor Framework
    The proposed rule would use a set of standardized weightings, or 
ASF factors, to measure the relative stability of a covered company's 
NSFR liabilities and NSFR regulatory capital elements over a one-year 
time horizon. ASF factors would be scaled from zero to 100 percent, 
with a zero percent weighting representing the lowest stability and a 
100 percent weighting representing the highest stability. The proposed 
rule would consider funding to be less stable if there is a greater 
likelihood that a covered company will need to replace or repay it 
during the NSFR's one-year time horizon--for example, if the funding 
matures and the counterparty declines to roll it over. The proposed 
rule would categorize NSFR liabilities and NSFR regulatory capital 
elements and assign an ASF factor based on three characteristics 
relating to the stability of the funding: (1) Funding tenor, (2) 
funding type, and (3) counterparty type.
    Funding tenor. For purposes of assigning ASF factors, the proposed 
rule would generally treat funding that has a longer effective maturity 
(or tenor) as more stable than shorter-term funding. All else being 
equal, funding that by its terms has a longer remaining tenor should be 
less susceptible to rollover risk, meaning there is a lower risk that a 
firm would need to replace maturing funds with less stable funding or 
potentially monetize less liquid positions at a loss to meet 
obligations, which could cause a firm's liquidity position to 
deteriorate. Longer-term funding, therefore, should provide greater 
stability across all market conditions, but especially during periods 
of stress. The proposed rule would group the maturities of NSFR 
liabilities and NSFR regulatory capital elements into one of three 
categories: Less than six months, six months or more but less than one 
year, and one year or more. The proposed rule would generally treat 
funding with a remaining maturity of one year or more as the most 
stable, because a covered company would not need to roll it over during 
the NSFR's one-year time horizon. Funding with a remaining maturity of 
less than six months or an open maturity would generally be treated as 
the least stable, because a covered company would need to roll it over 
in the short term. The proposed rule would generally treat funding that 
matures in six months or more but less than one year as partially 
stable, because a covered company would not need to roll it over in the 
shorter term, but would still need to roll it over before the end of 
the NSFR's one-year time horizon.
    As described further below and in section II.C.3 of this 
SUPPLEMENTARY INFORMATION section, funding tenor matters more for the 
stability of some categories of funding than for others. For example, 
with respect to stable retail deposits,\36\ contractual maturity 
generally has less effect on the stability of the funding relative to 
wholesale deposits.
---------------------------------------------------------------------------

    \36\ Section __.3 of the LCR rule defines a ``stable retail 
deposit'' as a retail deposit that is entirely covered by deposit 
insurance and either (1) is held by the depositor in a transactional 
account or (2) the depositor that holds the account has another 
established relationship with the covered company such as another 
deposit account, a loan, bill payment services, or any similar 
service or product provided to the depositor that the covered 
company demonstrates, to the satisfaction of the appropriate Federal 
banking agency, would make the withdrawal of the deposit highly 
unlikely during a liquidity stress event. ``Deposit insurance'' is 
defined in Sec.  __.3 as deposit insurance provided by the FDIC 
under the FDI Act (12 U.S.C. 1811 et seq.).
---------------------------------------------------------------------------

    Funding type. The proposed rule would recognize that certain types 
of funding are inherently more stable than others, independent of the 
remaining tenor. For example, as described in section II.C.3.b of this 
SUPPLEMENTARY INFORMATION section, the proposed rule would assign a 
higher ASF factor to stable retail deposits relative to other retail 
deposits, due in large part to the presence of full deposit insurance 
coverage and other stabilizing features that reduce the likelihood of a 
counterparty discontinuing the funding across a broad range of market 
conditions. Similarly, the proposed rule would assign a higher ASF 
factor to operational deposits than to certain other forms of short-
term, wholesale deposits, based on the provision of services linked to 
an operational deposit, as discussed in section II.C.3.d of this 
SUPPLEMENTARY INFORMATION section. Likewise, the proposed rule would 
assign different ASF factors to different categories of retail brokered 
deposits, based on features that tend to make these forms of deposit 
more or less stable, as described in sections II.C.3.c, II.C.3.d, and 
II.C.3.e of this SUPPLEMENTARY INFORMATION section below.
    Counterparty type. The proposed rule's assignment of ASF factors 
would also take into account the type of counterparty providing 
funding, using the same counterparty type classifications as the LCR 
rule: (1) Retail customers or counterparties, (2) wholesale customers 
or counterparties that are not financial sector entities, and (3) 
financial sector entities.\37\ As

[[Page 35135]]

described below and in section II.C.3 of this SUPPLEMENTARY INFORMATION 
section, within the NSFR's one-year time horizon, and all other things 
being equal, the proposed rule would treat most types of deposit 
funding provided by retail customers or counterparties as more stable 
than similar types of funding provided by wholesale customers or 
counterparties. It would also treat most types of funding that matures 
within six months and that is provided by financial sector entities as 
less stable than funding of a similar tenor provided by non-financial 
wholesale customers or counterparties.
---------------------------------------------------------------------------

    \37\ Under Sec.  __.3 of the LCR rule, the term ``retail 
customer or counterparty'' includes individuals, certain small 
businesses, and certain living or testamentary trusts. The term 
``wholesale customer or counterparty'' refers to any customer or 
counterparty that is not a retail customer or counterparty. The term 
``financial sector entity'' refers to a regulated financial company, 
identified company, investment advisor, investment company, pension 
fund, or non-regulated fund, as such terms are defined in Sec.  
__.3. The proposed rule would incorporate these definitions. For 
purposes of determining ASF and RSF factors assigned to assets, 
commitments, and liabilities where counterparty is relevant, the 
proposed rule would treat an unconsolidated affiliate of a covered 
company as a financial sector entity.
---------------------------------------------------------------------------

    Different types of counterparties may respond to events and market 
conditions in different ways. For example, differences in business 
models and liability structures tend to make short-term funding 
provided by financial sector entities less stable than similar funding 
provided by non-financial wholesale customers or counterparties. 
Financial sector entities typically have less stable liability 
structures than non-financial wholesale customers or counterparties, 
due to their financial intermediation activities. They tend to be more 
sensitive to market fluctuations and more susceptible to sudden cash 
outflows that could cause them to rapidly withdraw funding from a 
covered company. In contrast, wholesale customers and counterparties 
that are not financial sector entities typically maintain balances with 
covered companies to support their non-financial activities, such as 
production and physical investment, which tend to be impacted by 
financial market fluctuations to a lesser degree than activities of 
financial sector entities. In addition, non-financial wholesale 
customers or counterparties generally rely less on funding that is 
short-term or that can be withdrawn on demand. Therefore, these non-
financial wholesale customers or counterparties may be less likely than 
financial sector entities to rapidly withdraw funding from a covered 
company. The proposed rule would accordingly treat most short-term 
funding provided by financial sector entities as less stable than 
similar funding provided by non-financial wholesale customers or 
counterparties.
    The proposed rule's assignment of ASF factors would also account 
for differences in funding provided by retail and wholesale customers 
or counterparties. For example, retail customers and counterparties 
typically place deposits at a bank to safeguard their money and access 
the payments system, which makes them less likely to withdraw these 
deposits purely as a result of market stress, especially when covered 
by deposit insurance. Wholesale customers or counterparties, while 
often motivated by similar considerations, may also be motivated to a 
greater degree by the return and risk of an investment. In addition, as 
compared to retail customers or counterparties, wholesale customers or 
counterparties tend to be more sophisticated and responsive to changing 
market conditions, and often employ personnel who specialize in the 
financial management of the company. Therefore, the proposed rule would 
treat most types of deposit funding provided by retail customers or 
counterparties as more stable than similar funding provided by 
wholesale customers or counterparties.
    While comprehensive data on the funding of covered companies by 
counterparty type is limited, the agencies' analysis of available data 
was consistent with the expectation of funding stability differences 
across counterparty types.\38\ The agencies reviewed information 
collected on the Consolidated Reports of Condition and Income (Call 
Report), Report of Assets and Liabilities of U.S. Branches and Agencies 
of Foreign Banks (FFIEC 002), and the Securities and Exchange 
Commission (SEC) Financial and Operational Combined Uniform Single 
Report (FOCUS Report) over the period beginning December 31, 2007, and 
ending December 31, 2008, in combination with more recent FR 2052a 
report data and supervisory information collected in connection with 
the LCR rule. In addition, the agencies reviewed supervisory 
information collected from depository institutions that the FDIC placed 
into receivership in 2008 and 2009. Although the NSFR requirement is 
designed to measure the stability of a covered company's funding 
profile across all market conditions and would not be specifically 
based on a market stress environment, the agencies focused on a period 
of stress for purposes of evaluating the relative effects of 
counterparty type on funding stability. Because a covered company may 
under normal conditions adjust funding across counterparty types for 
any number of reasons, focusing on periods of stress allowed the 
agencies to better measure differences in stability by counterparty 
type. During these periods of stress, a covered company will generally 
be trying to roll over its funding, so differences in funding behavior 
may reasonably be more attributed to its counterparties than business 
decisions of the covered company.
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    \38\ Prior to the 2007-2009 financial crisis, covered companies 
did not consistently report or disclose detailed liquidity 
information. On November 17, 2015, the Board adopted the revised FR 
2052a Complex Institutions Liquidity Monitoring Report (FR 2052a 
report) to collect quantitative information on selected assets, 
liabilities, funding activities, and contingent liabilities from 
certain large banking organizations.
---------------------------------------------------------------------------

    The agencies' analysis of available public and supervisory 
information found that, during 2008, funding from financial sector 
entities exhibited less stability than funding provided by non-
financial wholesale counterparties, which in turn exhibited less 
stability than retail deposits. For example, Call Report data on 
insured deposits, deposit data from the FFIEC 002, and broker-dealer 
liability data reported on the SEC FOCUS Report showed higher 
withdrawals in wholesale funding than retail deposits over this period. 
The agencies' analysis of supervisory data from a sample of large 
depository institutions that the FDIC placed into receivership in 2008 
and 2009 also indicated that, during the periods leading up to 
receivership, funding provided by wholesale counterparties can be 
significantly less stable, showing higher average total withdrawals, 
than funding provided by retail customers and counterparties.
    Question 12: The agencies invite comment regarding the foregoing 
framework. Are funding tenor, funding type, and counterparty type 
appropriate indicators of funding stability for purposes of the 
proposed rule? Why or why not? What other funding characteristics 
should the proposed rule take into account for purposes of assigning 
ASF factors? Please provide data and analysis to support your 
conclusions.
3. ASF Factors
a. 100 Percent ASF Factor
NSFR Regulatory Capital Elements and Long-Term NSFR Liabilities
    Section __.104(a) of the proposed rule would assign a 100 percent 
ASF factor to NSFR regulatory capital elements, as defined in Sec.  
__.3 and described in section I.D of this SUPPLEMENTARY INFORMATION 
section, and to NSFR liabilities that mature one year or more from the 
calculation date, other than funding provided by retail customers or 
counterparties. Because NSFR regulatory capital elements and these 
long-term liabilities do not mature during the NSFR's one-year time 
horizon, they are not susceptible to rollover risk during this time 
frame and represent the most stable form of

[[Page 35136]]

funding under the proposed rule. This category would include securities 
issued by a covered company that have a remaining maturity of one year 
or more. Therefore, the proposed rule would assign the highest possible 
ASF factor of 100 percent to NSFR regulatory capital elements and most 
long-term NSFR liabilities. As described in sections II.C.3.b through 
II.C.3.e of this SUPPLEMENTARY INFORMATION section, the proposed rule 
would assign different ASF factors to retail deposits and other forms 
of NSFR liabilities provided by retail customers or counterparties.
    Question 13: Which, if any, NSFR regulatory capital elements should 
be assigned an ASF factor of other than 100 percent, and why?
    Question 14: Should long-term debt securities issued by a covered 
company where the company is the primary market maker of such 
securities be assigned an ASF factor other than 100 percent (such as 
between 95 and 99 percent) to address the risk of a covered company 
buying back these debt securities? Please provide supporting data for 
such alternative factors.
b. 95 Percent ASF Factor
Stable Retail Deposits
    Section __.104(b) of the proposed rule would assign a 95 percent 
ASF factor to stable retail deposits held at a covered company.\39\ The 
proposed rule would assign a 95 percent ASF factor to stable retail 
deposits to reflect the fact that such deposits are a highly stable 
source of funding for covered companies. Specifically, the combination 
of full deposit insurance coverage, the depositor's relationship with 
the covered company, and the costs of moving transactional or multiple 
accounts to another institution substantially reduce the likelihood 
that retail depositors will withdraw these deposits in significant 
amounts over a one-year time horizon.\40\ Because stable retail 
deposits are nearly as stable over the NSFR's one-year time horizon as 
NSFR regulatory capital elements and long-term NSFR liabilities under 
Sec.  __.104(a) of the proposed rule (described above in section 
II.C.3.a), the proposed rule would assign to stable deposits an ASF 
factor that is only slightly lower than that assigned to NSFR 
regulatory capital elements and long-term NSFR liabilities.
---------------------------------------------------------------------------

    \39\ The proposed rule would incorporate the LCR rule's 
definition of ``stable retail deposit.'' See supra note 36.
    \40\ See supra section II.C.2 of this SUPPLEMENTARY INFORMATION 
section.
---------------------------------------------------------------------------

    As discussed in section II.C.2 of this SUPPLEMENTARY INFORMATION 
section, insured retail deposits would be treated as more stable than 
similar funding from wholesale customers or counterparties, and would 
therefore be assigned a higher ASF factor.
    Consistent with the LCR rule, the maturity and collateralization of 
stable retail deposits would not affect their treatment under the 
proposed rule, because the stability of retail deposits is more closely 
linked to the combination of deposit insurance, the other stabilizing 
features included in the definition of ``stable retail deposit,'' and 
the retail nature of the depositor, rather than maturity or any 
underlying collateral. Maturity is less relevant, for example, because 
a covered company may repay a retail term deposit for business and 
reputational reasons in the event of an early withdrawal request by the 
depositor despite the absence of a contractual requirement to provide 
such a repayment within the NSFR's one-year time horizon.
c. 90 Percent ASF Factor
Other Retail Deposits
    Section __.104(c) of the proposed rule would assign a 90 percent 
ASF factor to retail deposits that are neither stable retail deposits 
nor retail brokered deposits, which includes retail deposits that are 
not fully insured by the FDIC or are insured under non-FDIC deposit 
insurance regimes.
    The proposed rule would assign a lower ASF factor to deposits that 
are not entirely covered by deposit insurance relative to that assigned 
to stable retail deposits because of the elevated risk of depositors 
withdrawing funds if they become concerned about the condition of the 
bank, in part, because the depositor will have no guarantee that 
uninsured funds will promptly be made available through established and 
timely intervention and resolution protocols. Supervisory experience 
has demonstrated that retail depositors whose deposits exceed the 
FDIC's insurance limit have tended to withdraw not only the uninsured 
portion of the deposit, but the entire deposit under these 
circumstances. In addition, deposits that are neither transactional 
deposits nor deposits of a customer that has another relationship with 
a covered company tend to be less stable than deposits that have such 
characteristics because the depositor is less reliant on the bank. 
Therefore, the proposed rule would assign an ASF factor of 90 percent 
to these deposits, slightly lower than the ASF factor it would assign 
to stable retail deposits.
    Retail customers and counterparties tend to provide deposits that 
are more stable than funding provided by other types of counterparties, 
as discussed in section II.C.2 of this SUPPLEMENTARY INFORMATION 
section above, and, thus, retail deposits would be assigned a higher 
ASF factor than all but the most stable forms of long-term funding from 
wholesale customers. For the same reasons as discussed above in 
relation to stable retail deposits, the maturity and collateralization 
of these other retail deposits would not affect the ASF factor they 
would be assigned under the proposed rule.
    Retail funding that is not in the form of a deposit, such as 
payables owed to small business service providers, would not be treated 
as stable funding and would be assigned a zero percent ASF factor, as 
described in section II.C.3.e of this SUPPLEMENTARY INFORMATION section 
below.
Fully Insured Affiliate, Reciprocal, and Certain Longer-Term Retail 
Brokered Deposits
    Section __.104(c) of the proposed rule would assign a relatively 
high 90 percent ASF factor to three categories of brokered deposits 
\41\ provided by retail customers or counterparties that include 
certain stabilizing features that tend to make them more stable forms 
of funding than other brokered deposits, as discussed in sections 
II.C.3.d and II.C.3.e of this SUPPLEMENTARY INFORMATION section 
below.\42\ Retail brokered deposits that would be assigned a 90 percent 
ASF factor include (1) a reciprocal brokered deposit where the entire 
amount is covered by deposit insurance; \43\ (2) a brokered sweep 
deposit that is deposited in accordance with a contract between the 
retail customer or counterparty and the

[[Page 35137]]

covered company, a controlled subsidiary of the covered company, or a 
company that is a controlled subsidiary of the same top-tier company of 
which the covered company is a controlled subsidiary, where the entire 
amount of the deposit is covered by deposit insurance; \44\ and (3) a 
brokered deposit that is not a reciprocal brokered deposit or brokered 
sweep deposit, is not held in a transactional account, and has a 
remaining maturity of one year or more. By assigning a 90 percent ASF 
factor, the proposed rule would treat these brokered deposits as more 
stable than most other categories of brokered deposits, less stable 
than stable retail deposits, and comparably stable to retail deposits 
other than stable retail deposits.
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    \41\ Under Sec.  __.3 of the LCR rule, a brokered deposit is a 
deposit held at the covered company that is obtained, directly or 
indirectly, from or through the mediation or assistance of a deposit 
broker, as that term is defined in section 29(g) of the FDI Act (12 
U.S.C. 1831f(g)).
    \42\ The agencies note that the ASF factors assigned to retail 
brokered deposits are based solely on the stable funding 
characteristics of these deposits over a one-year time horizon. The 
assignment of ASF factors is not intended to reflect the impact of 
these deposits on a covered company, such as their effect on a 
company's probability of failure or loss given default, franchise 
value, or asset growth rate or lending practices. In addition, the 
assignment of ASF factors does not affect the determination of 
deposits as brokered, which is addressed under other regulations and 
guidance.
    \43\ A ``reciprocal brokered deposit'' is defined in Sec.  __.3 
of the LCR rule as a brokered deposit that the covered company 
receives through a deposit placement network on a reciprocal basis, 
such that: (1) For any deposit received, the covered company (as 
agent for the depositors) places the same amount with other 
depository institutions through the network and (2) each member of 
the network sets the interest rate to be paid on the entire amount 
of funds it places with other network members.
    \44\ Under Sec.  __.3 of the LCR rule, a ``brokered sweep 
deposit'' is a deposit held at a covered company by a customer or 
counterparty through a contractual feature that automatically 
transfers to the covered company from another regulated financial 
company at the close of each business day amounts identified under 
the agreement governing the account from which the amount is being 
transferred. Typically, these transactions involve securities firms 
or investment companies that transfer (``sweep'') idle customer 
funds into deposit accounts at one or more banks.
---------------------------------------------------------------------------

    First, Sec.  __.104(c)(2) of the proposed rule would assign a 90 
percent ASF factor to a reciprocal brokered deposit provided by a 
retail customer or counterparty, where the entire amount of the deposit 
is covered by deposit insurance. The reciprocal nature of the brokered 
deposit means that a deposit placement network contractually provides a 
covered company with the same amount of deposits that it places with 
other depository institutions. As a result, and because the deposit is 
fully insured, the retail customers or counterparties providing the 
deposit tend to be less likely to withdraw it than other types of 
brokered deposits.
    Second, Sec.  __.104(c)(3) of the proposed rule would assign a 90 
percent ASF factor to a brokered sweep deposit that is deposited in 
accordance with a contract between the retail customer or counterparty 
that provides the deposit and the covered company or an affiliate of 
the covered company, where the entire amount of the deposit is covered 
by deposit insurance. A typical brokered sweep deposit arrangement 
places deposits, usually those in excess of deposit insurance caps, at 
different banking organizations, with each banking organization 
receiving the maximum amount that is covered by deposit insurance, 
according to a priority ``waterfall.'' Within the waterfall structure, 
affiliates of the deposit broker tend to be the first to receive 
deposits and the last from which deposits are withdrawn. With this 
affiliate relationship, a covered company is more likely to receive and 
maintain a steady stream of brokered sweep deposits. Based on the 
reliability of this stream of brokered sweep deposits and the enhanced 
stability associated with full deposit insurance coverage, the proposed 
rule would treat this type of brokered deposit, in the aggregate, as 
more stable than brokered sweep deposits received from unaffiliated 
institutions.
    Third, Sec.  __.104(c)(4) of the proposed rule would assign a 90 
percent ASF factor to a brokered deposit provided by a retail customer 
or counterparty that is not a reciprocal brokered deposit or brokered 
sweep deposit, is not held in a transactional account, and has a 
remaining maturity of one year or more. The contractual term of this 
category of brokered deposit and the exclusion of accounts used by a 
customer for transactional purposes make this category of brokered 
deposit more stable than other types of brokered deposits that would be 
assigned a lower ASF factor. Like other types of retail deposits with a 
remaining maturity of one year or more, however, these deposits would 
not be assigned a 100 percent ASF factor, because a covered company may 
be more likely to repay retail brokered deposits, in the event of an 
early withdrawal request by the depositor, for reputational or 
franchise reasons even without a contractual requirement to make such 
repayment. In addition, the brokered nature of these deposits makes 
them no more stable than stable retail deposits, which are assigned a 
95 percent ASF factor, or retail deposits other than stable retail 
deposits and brokered deposits, which are assigned a 90 percent ASF 
factor, even if the deposit is fully covered by deposit insurance.
    The proposed rule would assign lower ASF factors to brokered 
deposits that do not include these stabilizing factors, as discussed in 
sections II.C.3.d and II.C.3.e of this SUPPLEMENTARY INFORMATION 
section below.
    Question 15: To what extent should the proposed rule consider the 
contractual term of a retail deposit (in addition to considering it for 
some forms of brokered deposits) for purposes of assigning an ASF 
factor? What alternative ASF factors, if any, would be more 
appropriate, and under what circumstances?
    Question 16: The agencies invite commenter views on the proposed 
90, 50, and zero percent ASF factors assigned to retail brokered 
deposits. What, if any, alternative ASF factors should be assigned to 
these deposits and why?
d. 50 Percent ASF Factor
    Section __.104(d) of the proposed rule would assign a 50 percent 
ASF factor to certain unsecured wholesale funding, and secured funding 
transactions, depending on the tenor of the transaction and the covered 
company's counterparty; operational deposits that are placed at the 
covered company; and certain brokered deposits.
Unsecured Wholesale Funding Provided by, and Secured Funding 
Transactions With, a Counterparty That Is Not a Financial Sector Entity 
or Central Bank and With Remaining Maturity of Less Than One Year
    Sections __.104(d)(1) and (2) of the proposed rule would assign a 
50 percent ASF factor to a secured funding transaction or unsecured 
wholesale funding (including a wholesale deposit) that, in each case, 
matures less than one year from the calculation date and is provided by 
a wholesale customer or counterparty that is not a central bank or a 
financial sector entity (or a consolidated subsidiary thereof).
    The proposed 50 percent ASF factor for this category would be lower 
than the 100 percent ASF factor assigned to funding from similar 
counterparties that matures more than a year from the calculation date 
because the need to roll over the funding during the NSFR's one-year 
time horizon makes this category of funding less stable. The 50 percent 
ASF factor would also be lower than the factor assigned to the 
categories of retail deposits described above, which include features 
such as deposit insurance and retail counterparty relationships that 
make those categories of funding more stable, regardless of remaining 
contractual maturity.
    The proposed rule would generally assign an ASF factor to secured 
funding transactions and unsecured wholesale funding on the basis of 
counterparty type and maturity, without regard to whether and what type 
of collateral secures the transaction. This treatment would differ from 
the LCR rule, which more closely considers the liquidity 
characteristics of the underlying collateral. This different treatment 
stems from the fact that the LCR rule considers the immediate liquidity 
of the underlying collateral and behavior of the counterparty during a 
30-calendar day period of significant stress, whereas the proposed rule 
focuses on the stability of funding over a one-year time horizon, which 
is less influenced by the underlying collateral.

[[Page 35138]]

Unsecured Wholesale Funding Provided by, and Secured Funding 
Transactions With, a Financial Sector Entity or Central Bank With 
Remaining Maturity of Six Months or More, But Less Than One Year
    Sections __.104(d)(3) and (4) of the proposed rule would assign a 
50 percent ASF factor to a secured funding transaction or unsecured 
wholesale funding that matures six months or more but less than one 
year from the calculation date and is provided by a financial sector 
entity or a consolidated subsidiary thereof, or a central bank.\45\ As 
discussed in section II.C.2 of this SUPPLEMENTARY INFORMATION section, 
to account for the less stable nature of funding from these financial 
counterparties, the proposed rule would treat this funding more 
conservatively than funding from other types of wholesale customers or 
counterparties. If the funding from these counterparties has a maturity 
of less than six months, the proposed rule would assign a zero percent 
ASF factor, as described below, which would reflect the higher rollover 
risk of the funding resulting from the short remaining maturity and the 
financial nature of the counterparty.
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    \45\ As noted supra note 37 for purposes of determining ASF and 
RSF factors assigned to assets, commitments, and liabilities where 
counterparty is relevant, the proposed rule would treat an 
unconsolidated affiliate of a covered company as a financial sector 
entity.
---------------------------------------------------------------------------

    The proposed rule would treat funding from central banks 
consistently with funding from financial sector entities (i.e., as a 
less stable form of funding) to discourage potential overreliance on 
funding from central banks, consistent with the proposed rule's focus 
on stable funding raised from market sources. In the United States, the 
Federal Reserve does not currently offer funding arrangements of this 
term.
Securities Issued by a Covered Company With Remaining Maturity of Six 
Months or More, But Less Than One Year
    Section __.104(d)(5) of the proposed rule would assign a 50 percent 
ASF factor to securities issued by a covered company that mature in six 
months or more, but less than one year, from the calculation date. As 
discussed in section II.C.2 of this SUPPLEMENTARY INFORMATION section, 
in general, the proposed rule would consider funding that has a longer 
maturity to be more stable. These securities would represent less 
stable funding than securities issued by a covered company that are 
perpetual or mature one year or more from the calculation date (which 
would be assigned an ASF factor of 100 percent, as discussed above), 
but more stable funding than securities that mature within six months 
from the calculation date (which would be assigned a zero percent ASF 
factor, as discussed below).
    Unlike other NSFR liabilities for which the proposed rule considers 
the counterparty type when assigning an ASF factor, the proposed rule 
would not consider the identities of the holders of the securities 
issued by a covered company. Because securities may actively trade on 
secondary markets and may be purchased by a variety of investors 
including financial sector entities, the identities of current security 
holders would not be an accurate or consistent factor that affects the 
stability of this type of funding. In addition, a covered company may 
not know or be able to track the identities of the holders of its 
securities that are traded. The proposed rule would therefore treat 
securities issued by a covered company equivalently to funding provided 
by a financial sector entity, rather than assuming greater stability 
based on a different type of counterparty. Therefore, similar to 
funding provided by a financial sector entity, securities issued by a 
covered company that mature in six months or more, but less than one 
year, from the calculation date would be assigned a 50 percent ASF 
factor.
Operational Deposits
    Operational deposits are unsecured wholesale funding in the form of 
deposits or collateralized deposits that are necessary for the 
provision of operational services, such as clearing, custody, or cash 
management services.\46\ In the LCR rule, such funds are assumed to 
have a lower outflow rate than other types of unsecured wholesale 
funding during a period of stress based on legal or operational 
limitations that make significant withdrawals from these accounts 
within 30 calendar days less likely. For example, an entity that relies 
on the cash management services of a covered company would find it more 
difficult to terminate its deposit agreement because it might be 
subject to early termination fees and might also incur start-up costs 
to establish a similar operational account with another financial 
institution.
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    \46\ The agencies note that the methodology that a covered 
company uses to determine whether and to what extent a deposit is 
operational for the purposes of the proposed rule must be consistent 
with the methodology used for the purposes of the LCR rule. See 
Sec.  __.3 of the LCR rule for the full list of services that 
qualify as operational services and Sec.  __.4(b) of the LCR rule 
for additional requirements for operational deposits.
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    As noted, a key operating assumption of the NSFR is a one-year time 
horizon. Under this longer time horizon, it is more reasonable to 
assume that a counterparty could successfully restructure its 
operational deposits and place them with another financial institution. 
Therefore, as compared with the treatment in the LCR rule, the 
treatment of operational deposits in the proposed rule is closer to 
that of non-operational deposits, but reflects that there may still be 
some difficulty and cost associated with switching operational service 
providers. Accordingly, Sec.  __.104(d)(6) of the proposed rule would 
also treat operational deposits, including those from financial sector 
entities, as more stable than other forms of short-term wholesale 
funding and assign them a 50 percent ASF factor.
Other Retail Brokered Deposits
    Section __.104(d)(7) of the proposed rule would assign a 50 percent 
ASF factor to most categories of brokered deposits provided by retail 
customers or counterparties that do not include the additional 
stabilizing features required under Sec.  __.104(c) and summarized in 
section II.C.3.c of this SUPPLEMENTARY INFORMATION section. Brokered 
deposits tend to be less stable and exhibit greater volatility than 
stable retail deposits, even in cases where the deposits are fully or 
partially insured, as customers can more easily move brokered deposits 
among institutions. In addition, intermediation by a deposit broker may 
result in a higher likelihood of withdrawal compared to a non-brokered 
retail deposit where a direct relationship exists between the depositor 
and the covered company. Statutory restrictions on certain brokered 
deposits can also make this form of funding less stable than other 
deposit types. Specifically, a covered company that becomes less than 
``well capitalized'' \47\ is subject to restrictions on accepting, 
renewing, or rolling over funds obtained directly or indirectly through 
a deposit broker.\48\ Thus, as a general matter, the proposed rule 
would assign a 50 percent ASF factor to most categories of brokered 
deposits.
---------------------------------------------------------------------------

    \47\ As defined in section 38 of the FDI Act, 12 U.S.C. 1831o.
    \48\ See 12 U.S.C. 1831f.
---------------------------------------------------------------------------

    Retail brokered deposits that would be assigned a 50 percent ASF 
factor include (1) a brokered deposit that is not a reciprocal brokered 
deposit or brokered sweep deposit and that is held in a transactional 
account; (2) a

[[Page 35139]]

brokered deposit that is not a reciprocal brokered deposit or brokered 
sweep deposit, is not held in a transactional account, and matures in 
six months or more, but less than one year, from the calculation date; 
(3) a reciprocal brokered deposit or brokered affiliate sweep deposit 
where less than the entire amount of the deposit is covered by deposit 
insurance; and (4) a brokered non-affiliate sweep deposit, regardless 
of deposit insurance coverage.
    Retail brokered deposits to which the proposed rule would assign a 
50 percent ASF factor do not have the same combination of stabilizing 
attributes, such as a combination of being fully covered by deposit 
insurance, being an affiliated brokered sweep deposit, or having a 
longer-term maturity, as brokered deposits assigned a 90 percent ASF 
factor, as discussed in section II.C.3.c of this SUPPLEMENTARY 
INFORMATION section. However, these types of brokered deposits are more 
stable than brokered deposits that mature in less than six months from 
the calculation date and are not reciprocal brokered deposits or 
brokered sweep deposits or held in a transactional account, which are 
assigned a zero percent ASF factor, as discussed in section II.C.3.e of 
this SUPPLEMENTARY INFORMATION section.
All Other NSFR Liabilities With Remaining Maturity of Six Months or 
More, But Less Than One Year
    Section __.104(d)(8) of the proposed rule would assign a 50 percent 
ASF factor to all other NSFR liabilities that have a remaining maturity 
of six months or more, but less than one year. As discussed in section 
II.C.2 of this SUPPLEMENTARY INFORMATION section, a covered company 
would not need to roll over a liability of this maturity in the 
shorter-term, but would still need to roll it over before the end of 
the NSFR's one-year time horizon.
e. Zero Percent ASF Factor
    Section __.104(e) of the proposed rule would assign a zero percent 
ASF factor to NSFR liabilities that demonstrate the least stable 
funding characteristics, including trade date payables, certain short-
term retail brokered deposits, non-deposit retail funding, certain 
short-term funding from financial sector entities, and any other NSFR 
liability that matures in less than six months and is not described 
above.
Trade Date Payables
    Section __.104(e)(1) of the proposed rule would assign a zero 
percent ASF factor to trade date payables that result from purchases by 
a covered company of financial instruments, foreign currencies, and 
commodities that are required to settle within the lesser of the market 
standard settlement period for the particular transactions and five 
business days from the date of the sale. Trade date payables are 
established when a covered company buys financial instruments, foreign 
currencies, and commodities, but the transactions have not yet settled. 
These payables, which are liabilities, should result in an outflow from 
a covered company at the settlement date, which varies depending on the 
specific market, but generally occurs within five business days, so the 
proposed rule does not treat the liability as stable funding. The 
failure of a trade date payable to settle within the required 
settlement period for the transaction would not affect the ASF factor 
assigned to the transaction under the proposed rule because a trade 
date payable that has failed to settle also does not represent stable 
funding. Consistent with the definition of ``derivative transaction'' 
in Sec.  __.3, the proposed rule would treat a payable with a 
contractual settlement period that is longer than the lesser of the 
market standard for the particular instrument or five business days as 
a derivative transaction under Sec.  __.107, rather than as a trade 
date payable.
Certain Brokered Deposits
    Section __.104(e)(2) of the proposed rule would assign a zero 
percent ASF factor to a brokered deposit provided by a retail customer 
or counterparty that is not a reciprocal brokered deposit or brokered 
sweep deposit, is not held in a transactional account, and matures less 
than six months from the calculation date. In addition to the reasons 
discussed in section II.C.3.d above, this type of brokered deposit 
tends to be less stable than other types of brokered deposits because 
of the absence of incrementally stabilizing features such as being a 
transactional account or reciprocal or brokered sweep arrangement. As a 
result, retail customers or counterparties that provide this type of 
brokered deposit face low costs associated with withdrawing the 
funding. For example, a retail customer or counterparty providing this 
type of brokered deposit may seek to deposit funds with the banking 
organization that offers the highest interest rates, which may not be 
the covered company.
Non-Deposit Retail Funding
    Section __.104(e)(3) of the proposed rule would assign a zero 
percent ASF factor to retail funding that is not in the form of a 
deposit. Given that non-deposit retail liabilities are not regular 
sources of funding or commonly utilized funding arrangements, the 
proposed rule would not treat any portion of them as stable funding. As 
noted above, a security issued by the covered company that is held by a 
retail customer or counterparty would not take into account 
counterparty type and therefore would not fall within this category.
Short-Term Funding From a Financial Sector Entity or Central Bank
    Section __.104(e)(5) of the proposed rule would apply a zero 
percent ASF factor to funding (other than operational deposits) for 
which the counterparty is a financial sector entity or a consolidated 
subsidiary thereof and the transaction matures less than six months 
from the calculation date.\49\ Financial sector entities and their 
consolidated subsidiaries are generally the most likely to withdraw 
funding from a covered company, regardless of whether the funding is 
secured or unsecured or the nature of any collateral securing the 
funding, as described in section II.C.2 of this SUPPLEMENTARY 
INFORMATION section.
---------------------------------------------------------------------------

    \49\ As noted supra note 37 for purposes of determining ASF and 
RSF factors assigned to assets, commitments, and liabilities where 
counterparty is relevant, the proposed rule would treat an 
unconsolidated affiliate of a covered company as a financial sector 
entity.
---------------------------------------------------------------------------

    Short-term funding from central banks is also assigned a zero 
percent ASF factor to discourage overreliance on funding from central 
banks, consistent with the proposed rule's focus on stable funding from 
market sources, as noted in section II.C.3.d of this Supplementary 
Information section above. For example, overnight funding from the 
Federal Reserve's discount window would be assigned a zero percent ASF 
factor.
Securities Issued by a Covered Company With Remaining Maturity of Less 
Than Six Months
    Section __.104(e)(4) of the proposed rule would assign a zero 
percent ASF factor to securities that are issued by a covered company 
and that have a remaining maturity of less than six months. As 
discussed above, the proposed rule generally treats as less stable 
those instruments that have shorter tenors and have to be paid within 
the NSFR's one-year time horizon. Because these liabilities may be 
actively traded, also as discussed above, the counterparty holding the 
securities may not be reflective of the stability of the covered 
company's funding under the securities. As a result, the proposed rule 
would treat these NSFR liabilities

[[Page 35140]]

equivalently to funding with a similar maturity provided by a financial 
sector entity, rather than assuming greater stability based on a 
particular type of counterparty.
All Other NSFR Liabilities With Remaining Maturity of Less Than Six 
Months or an Open Maturity
    Section __.104(e)(6) of the proposed rule would assign a zero 
percent ASF factor to all other NSFR liabilities, including those that 
mature less than six months from the calculation date and those that 
have an open maturity. NSFR liabilities that do not fall into one of 
the categories described above would not represent a regular or 
reliable source of funding and, therefore, the proposed rule would not 
treat any portion as stable funding.
    Question 17: What, if any, liabilities are not, but should be, 
specifically addressed in the proposed rule and what ASF factors should 
be assigned to those liabilities?
    Question 18: What, if any, additional ASF factors should be 
included and to which NSFR liabilities or NSFR regulatory capital 
elements should they be assigned? Would adding such ASF factors provide 
for a better calibrated ASF amount and, if so, why?
    Question 19: What, if any, liabilities owed to retail customers or 
counterparties not in the form of a deposit should be assigned an ASF 
factor greater than zero percent, and why?

D. Required Stable Funding

    Under the proposed rule, a covered company would be required to 
maintain an ASF amount that equals or exceeds its RSF amount. As 
described below, a covered company's RSF amount would be based on the 
liquidity characteristics of its assets, derivative exposures, and 
commitments. In general, the less liquid an asset over the NSFR's one-
year time horizon, the greater extent to which the proposed rule would 
require it to be supported by stable funding. By requiring a covered 
company to maintain more stable funding to support less liquid assets, 
the proposed rule would reduce the risk that the covered company may 
not be able to readily monetize the assets at a reasonable cost or 
could be required to monetize the assets at fire sale prices or in a 
manner that contributes to disorderly market conditions.
1. Calculation of the RSF Amount
    The proposed rule would require a covered company to calculate its 
RSF amount as set forth in Sec.  __.105. A covered company's RSF amount 
would equal the sum of two components: (i) The carrying values of a 
covered company's assets (other than assets included in the calculation 
of the covered company's derivatives RSF amount) and the undrawn 
amounts of its commitments, each multiplied by an RSF factor assigned 
under Sec.  __.106 and described in section II.D.3 of this 
SUPPLEMENTARY INFORMATION section; and (ii) the covered company's 
derivatives RSF amount, as calculated under Sec.  __.107 and described 
in section II.E of this SUPPLEMENTARY INFORMATION section.
2. RSF Factor Framework
    The proposed rule would use a set of standardized weightings, or 
RSF factors, to determine the amount of stable funding a covered 
company must maintain. Specifically, a covered company would calculate 
its RSF amount by multiplying the carrying values of its assets, the 
undrawn amounts of its commitments, and its measures of derivative 
exposures (as discussed in section II.E of this SUPPLEMENTARY 
INFORMATION section) by the assigned RSF factors. This approach would 
promote consistency of the proposed NSFR measure across covered 
companies.
    RSF factors would be scaled from zero percent to 100 percent based 
on the liquidity characteristics of an asset, derivative exposure, or 
commitment. A zero percent RSF factor means that the proposed rule 
would not require the asset, derivative exposure, or commitment to be 
supported by available stable funding, and a 100 percent RSF factor 
means that the proposed rule would require the asset, derivative 
exposure, or commitment to be fully supported by available stable 
funding. Accordingly, the proposed rule would generally assign a lower 
RSF factor to more liquid assets, exposures, and commitments and a 
higher RSF factor to less liquid assets, exposures, and commitments.
    The proposed rule would categorize assets, derivatives exposures, 
and commitments and assign an RSF factor based on the following 
characteristics relating to their liquidity over the NSFR's one-year 
time horizon: (1) Credit quality, (2) tenor, (3) type of counterparty, 
(4) market characteristics, and (5) encumbrance.
    Credit quality. Credit quality is a factor in an asset's liquidity 
because market participants tend to be more willing to purchase higher 
credit quality assets across a range of market and economic conditions, 
but especially in a stressed environment (sometimes called ``flight to 
quality''). The demand for higher credit quality assets, therefore, is 
more likely to persist and such assets are more likely to have 
resilient values, allowing a covered company to monetize them more 
readily. Assets of lower credit quality, in contrast, are more likely 
to become delinquent, and that increased credit risk makes these assets 
less likely to hold their value, particularly in times of market 
stress. As a result, the proposed rule would generally require assets 
of lower credit quality to be supported by more stable funding, to 
reduce the risk that a covered company may have to monetize the lower 
credit quality asset at a discount.
    Tenor. In general, the proposed rule would require a covered 
company to maintain more stable funding to support assets that have a 
longer tenor because of the greater time remaining before the covered 
company will realize inflows associated with the asset. In addition, 
assets with a longer tenor may liquidate at a discount because of the 
increased market and credit risks associated with cash flows occurring 
further in the future. Assets with a shorter tenor, in contrast, would 
require a smaller amount of stable funding under the proposed rule 
because a covered company would have access to the inflows under these 
assets sooner. Thus, the proposed rule would generally require less 
stable funding for shorter-term assets compared to longer-term assets. 
The proposed rule would divide maturities into three categories for 
purposes of a covered company's RSF amount calculation: less than six 
months, six months or more but less than one year, and one year or 
more.
    Counterparty type. A covered company may face pressure to roll over 
some portion of its assets in order to maintain its franchise value 
with customers and because a failure to roll over such assets could be 
perceived by market participants as an indicator of financial distress 
at the covered company. Typically, these risks are driven by the type 
of counterparty to the asset. For example, covered companies often 
consider their lending relationships with a wholesale, non-financial 
borrower to be important to maintain current business and generate 
additional business in the future. As a result, a covered company may 
have concerns about damaging future business prospects if it declines 
to roll over lending to such a customer for reasons other than a change 
in the financial condition of the borrower. More broadly, because 
market participants generally expect a covered company to roll over 
lending to wholesale, non-financial counterparties

[[Page 35141]]

based on relationships, a covered company's failure to do so could be 
perceived as a sign of liquidity stress at the company, which could 
itself cause such a liquidity stress.
    These concerns are less likely to be a factor with respect to 
financial counterparties because financial counterparties typically 
have a wider range of alternate funding sources already in place and 
face lower transaction costs associated with arranging alternate 
funding and less expectation of stable lending relationships with any 
single provider of credit. Therefore, market participants are less 
likely to assume the covered company is under financial distress if the 
covered company declines to roll over funding to a financial sector 
counterparty. In light of these business and reputational 
considerations, the proposed rule would require a covered company to 
more stably fund lending to non-financial counterparties than lending 
to financial counterparties, all else being equal.\50\
---------------------------------------------------------------------------

    \50\ As noted supra note 37 for purposes of determining ASF and 
RSF factors assigned to assets, commitments, and liabilities where 
counterparty is relevant, an unconsolidated affiliate of a covered 
company would be treated as a financial sector entity.
---------------------------------------------------------------------------

    Market characteristics. Assets that are traded in transparent, 
standardized markets with large numbers of participants and dedicated 
intermediaries tend to exhibit a higher degree of reliable liquidity. 
The proposed rule would, therefore, require less stable funding to 
support such assets than those traded in markets characterized by 
information asymmetry and relatively few participants.
    Depending on the asset class and the market, relevant measures of 
liquidity may include bid-ask spreads, market size, average trading 
volume, and price volatility.\51\ While no single metric is likely to 
provide for a complete assessment of market liquidity, multiple 
indicators taken together provide relevant information about the extent 
to which a liquid market exists for a particular asset class. For 
example, market data reviewed by the agencies show that securities that 
meet the criteria to qualify as HQLA typically trade with tighter bid-
ask spreads than non-HQLA securities and in markets with significantly 
higher average daily trading volumes, both of which tend to indicate 
greater liquidity in the markets for HQLA securities.
---------------------------------------------------------------------------

    \51\ In general, tighter bid-ask spreads, larger market sizes, 
higher trading volumes, and more consistent pricing tend to indicate 
greater market liquidity. The agencies reviewed market data 
discussed in this section II.D of this SUPPLEMENTARY INFORMATION 
section from the following sources: Bloomberg Finance L.P., 
Financial Industry Regulatory Authority (FINRA) Trade Reporting and 
Compliance Engine (TRACE), and Securities Industry and Financial 
Market Association statistics (http://www.sifma.org/research/statistics.aspx).
---------------------------------------------------------------------------

    Encumbrance. As described in section II.D.3 of this SUPPLEMENTARY 
INFORMATION section, whether and the degree to which an asset is 
encumbered will dictate the amount of stable funding the proposed rule 
would require a covered company to maintain to support the particular 
asset, as encumbered assets cannot be monetized during the period over 
which they are encumbered. For example, securities that a covered 
company has encumbered for a period of greater than one year in order 
to provide collateral for its longer-term borrowings are not available 
for the covered company to monetize in the shorter term. In general, 
the longer an asset is encumbered, the more stable funding the proposed 
rule would require.
    Question 20: The agencies invite comment regarding the foregoing 
framework. Are the characteristics described above appropriate 
indicators of the liquidity of a covered company's assets, derivative 
exposures, and commitments for purposes of the proposed rule? Why or 
why not? What other characteristics should the proposed rule take into 
account for purposes of assigning RSF factors? Please provide data and 
analysis to support your conclusions.
3. RSF Factors
    Section __.106 of the proposed rule would assign RSF factors to a 
covered company's assets and commitments, other than certain assets 
relating to derivative transactions that are assigned an RSF factor 
under Sec.  __.107. Section __.106 would also set forth specific 
treatment for nonperforming assets, encumbered assets, assets held in 
certain segregated accounts, and certain assets relating to secured 
lending transactions and asset exchanges.
a. Treatment of Unencumbered Assets
i. Zero Percent RSF Factor
    As noted above, a covered company's RSF amount reflects the 
liquidity characteristics of its assets, derivative exposures, and 
commitments. Section __.106(a)(1) of the proposed rule would assign a 
zero percent RSF factor to certain assets that can be directly used to 
meet financial obligations, such as cash, or that are expected, based 
on contractual terms, to be converted to assets that can be directly 
used to meet financial obligations over the immediate term. By 
assigning a zero percent RSF factor to these assets, the proposed rule 
would not require a covered company to support them with stable 
funding.
Currency and Coin
    Section __.106(a)(1)(i) of the proposed rule would assign a zero 
percent RSF factor to currency and coin because they can be directly 
used to meet financial obligations. Currency and coin include U.S. and 
foreign currency and coin owned and held in all offices of a covered 
company; currency and coin in transit to a Federal Reserve Bank or to 
any other depository institution for which the covered company's 
subsidiaries have not yet received credit; and currency and coin in 
transit from a Federal Reserve Bank or from any other depository 
institution for which the accounts of the subsidiaries of the covered 
company have already been charged.\52\
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    \52\ This description of currency and coin is consistent with 
the treatment of currency and coin in Federal Reserve form FR Y-9C.
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Cash Items in the Process of Collection
    Section __.106(a)(1)(ii) of the proposed rule would assign a zero 
percent RSF factor to cash items in the process of collection. These 
items would include: (1) Checks or drafts in process of collection that 
are drawn on another depository institution (or a Federal Reserve Bank) 
and that are payable immediately upon presentation in the country where 
the covered company's office that is clearing or collecting the check 
or draft is located, including checks or drafts drawn on other 
institutions that have already been forwarded for collection but for 
which the covered company has not yet been given credit (known as cash 
letters), and checks or drafts on hand that will be presented for 
payment or forwarded for collection on the following business day; (2) 
government checks drawn on the Treasury of the United States or any 
other government agency that are payable immediately upon presentation 
and that are in process of collection; and (3) such other items in 
process of collection that are payable immediately upon presentation 
and that are customarily cleared or collected as cash items by 
depository institutions in the country where the covered company's 
office which is clearing or collecting the item is located.\53\ Despite 
not being in a form that can be directly used to meet financial 
obligations at the calculation date, cash items in the process of 
collection will be in such a form in the immediate term. The proposed 
rule

[[Page 35142]]

would therefore not require these assets to be supported by stable 
funding.
---------------------------------------------------------------------------

    \53\ This description of cash items in the process of collection 
is consistent with the treatment of cash items in process of 
collection in Federal Reserve Form FR Y-9C.
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Reserve Bank Balances and Other Claims on a Reserve Bank That Mature in 
Less Than Six Months
    Section __.106(a)(1)(iii) of the proposed rule would assign a zero 
percent RSF factor to a Reserve Bank balance or other claim on a 
Reserve Bank that matures in less than six months from the calculation 
date. The term ``Reserve Bank balances'' is defined in Sec.  __.3 of 
the LCR rule and includes required reserve balances and excess 
reserves, but not other balances that a covered company maintains on 
behalf of another institution, such as balances it maintains on behalf 
of a respondent for which it acts as a pass-through correspondent \54\ 
or on behalf of an excess balance account participant.\55\
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    \54\ See 12 CFR 204.5(a)(1)(ii).
    \55\ See 12 CFR 204.10(d).
---------------------------------------------------------------------------

    The proposed rule would assign a zero percent RSF factor to Reserve 
Bank balances because these assets can be directly used to meet 
financial obligations through the Federal Reserve's payment system. The 
proposed rule would also assign a zero percent RSF factor to a claim on 
a Reserve Bank that does not meet the definition of a Reserve Bank 
balance if the claim matures in less than six months. In these cases, 
while the asset cannot be directly used to meet financial obligations 
of a covered company, a covered company faces little risk of a 
counterparty default or harm to its franchise value if it does not roll 
over the lending and it may therefore realize cash flows associated 
with the asset in the near term.
Claims on a Foreign Central Bank That Matures in Less Than Six Months
    Section __.106(a)(1)(iv) of the proposed rule would assign a zero 
percent RSF factor to claims on a foreign central bank that mature in 
less than six months. Similar to claims on a Reserve Bank, claims on a 
foreign central bank in this category may generally either be directly 
used to meet financial obligations or will be available for such use in 
the near term, and a covered company faces little risk of a 
counterparty default or harm to its franchise value if it does not roll 
over the lending. The proposed rule would therefore not require that 
they be supported by stable funding.
Trade Date Receivables
    Similar to cash items in the process of collection, a covered 
company can reasonably expect that certain contractual ``trade date'' 
receivables will settle in the near term. These trade date receivables 
are limited to those due to the covered company that result from the 
sales of financial instruments, foreign currencies, or commodities that 
(1) are required to settle within the lesser of the market standard 
settlement period for the relevant type of transaction, without 
extension of the standard settlement period, and five business days 
from the date of the sale; and (2) have not failed to settle within the 
required settlement period.\56\ Section __.106(a)(1)(v) of the proposed 
rule would assign a zero percent RSF to these receivables because they 
are generally reliable, with standardized, widely used settlement 
procedures and standardized settlement periods that are no longer than 
five business days. Thus, a covered company will realize inflows from 
these receivables in the very near term.
---------------------------------------------------------------------------

    \56\ Consistent with the definition of ``derivative 
transaction'' under Sec.  __.3 of the LCR rule, the proposed rule 
would treat a trade date receivable that has a contractual 
settlement or delivery lag beyond this period as a derivative 
transaction under Sec.  __.107. (The definition of ``derivative 
transaction'' under Sec.  __.3 of the LCR rule includes ``unsettled 
securities, commodities, and foreign currency exchange transactions 
with a contractual settlement or delivery lag that is longer than 
the lesser of the market standard for the particular instrument or 
five business days.'') The proposed rule would not treat as a 
derivative transaction a trade date receivable that has a 
contractual settlement or delivery lag within the lesser of the 
market standard settlement period and five business days, but which 
fails to settle within this period; instead, the proposed rule would 
assign a 100 percent RSF factor to the trade date receivable under 
Sec.  __.106(a)(8) as an asset not otherwise assigned an RSF factor 
under Sec.  __.106(a)(1) through (7) or Sec.  __.107.
---------------------------------------------------------------------------

    Question 21: Given the one-year time horizon of the NSFR, the 
proposed rule would not require a covered company to support its 
current reserve balance requirement with stable funding. Because 
balances that meet reserve balance requirements are not immediately 
available to be used to directly meet financial obligations, what, if 
any, RSF factor (such as 100 percent) should be assigned to a covered 
company's reserve balance requirement and why?
    Question 22: Should the proposed rule treat as a trade date 
receivable (instead of a derivative transaction) any transaction 
involving the sale of financial instruments, foreign currencies, or 
commodities, that has a market standard settlement period of greater 
than five business days from the date of the sale, and if so, why?
ii. 5 Percent RSF Factor
Unencumbered Level 1 Liquid Assets
    Section __.106(a)(2)(i) of the proposed rule would assign a 5 
percent RSF factor to level 1 liquid assets that would not be assigned 
a zero percent RSF factor. The proposed rule would incorporate the 
definition of ``level 1 liquid assets'' set forth in Sec.  __.20(a) of 
the LCR rule, which does not take into consideration the requirements 
under Sec.  __.22. The following level 1 liquid assets would be 
assigned a 5 percent RSF factor: (1) Securities issued or 
unconditionally guaranteed as to the timely payment of principal and 
interest by the U.S. Department of the Treasury; (2) liquid and 
readily-marketable securities, as defined in Sec.  __.3 of the LCR 
rule, issued or unconditionally guaranteed as to the timely payment of 
principal and interest by any other U.S. government agency (provided 
that its obligations are fully and explicitly guaranteed by the full 
faith and credit of the U.S. government); (3) certain liquid and 
readily-marketable securities that are claims on, or claims guaranteed 
by, a sovereign entity, a central bank, the Bank for International 
Settlements, the International Monetary Fund, the European Central Bank 
and European Community, or a multilateral development bank; and (4) 
certain liquid and readily-marketable debt securities issued by 
sovereign entities.
    Section __106(a)(2)(i) of the proposed rule would assign a 
relatively low RSF factor of 5 percent to these level 1 liquid assets 
based on their high credit quality and favorable market liquidity 
characteristics, which reflect their ability to serve as reliable 
sources of liquidity. For example, U.S. Treasury securities (a form of 
level 1 liquid assets) have among the highest credit quality of assets 
because they are backed by the full faith and credit of the U.S. 
government. In addition, the market for U.S. Treasury securities has a 
high average daily trading volume, large market size, and low bid-ask 
spreads relative to the markets in which other asset classes trade. 
Assignment of a 5 percent RSF factor would recognize that there are 
modest transaction costs related to selling U.S. Treasury securities 
and other level 1 liquid assets but that, other than assets that a 
covered company can use directly to meet financial obligations (or will 
be able to use within a matter of days), level 1 liquid assets 
generally represent the most readily monetizable asset types for a 
covered company.

[[Page 35143]]

Credit and Liquidity Facilities
    Section __.106(a)(2)(ii) of the proposed rule would assign a 5 
percent RSF factor to the undrawn amount of committed credit and 
liquidity facilities that a covered company provides to its customers 
and counterparties. The proposed rule would require a covered company 
to support these facilities with stable funding, even though they are 
generally not included on its balance sheet, because of their 
widespread use and associated material liquidity risk based on the 
possibility of drawdowns across a range of economic environments. 
Research conducted by Board staff found increases in drawdowns of as 
much as 10 percent of committed amounts over a 12-month period from 
2006-2011.\57\ Given the proposed rule's application across all 
counterparties and economic environments, assignment of a 5 percent RSF 
factor would be appropriate based on the observed drawdowns during this 
period.
---------------------------------------------------------------------------

    \57\ See Jose M. Berrospide, Ralf R. Meisenzahl, and Briana D. 
Sullivan, ``Credit Line Use and Availability in the Financial 
Crisis: The Importance of Hedging,'' Board of Governors of the 
Federal Reserve System, Finance and Economics Discussion Series 
2012-27 (2012).
---------------------------------------------------------------------------

    The terms ``credit facility'' and ``liquidity facility'' are 
defined in Sec.  __.3 of the LCR rule and, as described in section I.D 
of this Supplementary Information section, the proposed rule would 
modify the definition of ``committed'' that is currently in the LCR 
rule to describe credit and liquidity facilities that cannot be 
unconditionally canceled by a covered company. Under Sec.  __.106(a)(2) 
of the proposed rule, the undrawn amount is the amount that could be 
drawn upon within one year of the calculation date, whereas under Sec.  
__.32(e) of the LCR rule, the undrawn amount is the amount that could 
be drawn upon within 30 calendar days. When determining the undrawn 
amount over the proposed rule's one-year time horizon, a covered 
company would not include amounts that are contingent on the occurrence 
of a contractual milestone or other event that cannot be reasonably 
expected to be reached or occur within one year. For example, if a 
construction company can draw a certain amount from a credit facility 
only upon meeting a construction milestone that cannot reasonably be 
expected to be reached within one year, such as entering the final 
stage of a multi-year project that has just begun, then the undrawn 
amount would not include the amount that would become available only 
upon entering the final stage of the project.
    Similarly, a letter of credit that meets the definition of credit 
or liquidity facility may entitle a seller to obtain funds from a 
covered company if a buyer fails to pay the seller. If, under the terms 
of the letter of credit, the seller is not legally entitled to obtain 
funds from the covered company as of the calculation date because the 
buyer has not failed to perform under the agreement with the seller, 
and the covered company does not reasonably expect nonperformance 
within the NSFR's one-year time horizon, then the funds potentially 
available under the letter of credit are not undrawn amounts. If the 
seller is legally entitled to obtain the funds available under the 
letter of credit as of the calculation date (because the buyer has 
defaulted) or if the buyer should reasonably be expected to default 
within the NSFR's one-year time horizon, then the funds available under 
the letter of credit are undrawn amounts.
    Unlike the LCR rule, which permits covered companies to net certain 
level 1 and level 2A liquid assets that secure a committed credit or 
liquidity facility against the undrawn amount of the facility, the 
proposed rule would not allow netting of such assets because any draw 
upon a credit or liquidity facility would become an asset on a covered 
company's balance sheet regardless of the underlying collateral and 
would require stable funding.
    Question 23: The agencies invite comment on the proposed assignment 
of a 5 percent RSF factor to the undrawn amount of committed credit and 
liquidity facilities. What, if any, additional factors should be 
considered in determining the treatment of unfunded commitments under 
the proposed rule?
    Question 24: What, if any, modifications to the definitions of 
``credit facility'' and ``liquidity facility'' or the description of 
the ``undrawn amount'' for purposes of the proposed rule should the 
agencies consider?
    Question 25: If required to be posted as collateral upon a draw on 
a committed credit or liquidity facility, should certain level 1 and 
level 2A liquid assets be netted against the undrawn amount of the 
facility, and if so, why? Provide detailed explanations and supporting 
data.
iii. 10 Percent RSF Factor
Secured Lending Transactions With a Financial Sector Entity or a 
Subsidiary Thereof That Mature Within Six Months and Are Secured by 
Rehyphothecatable Level 1 Liquid Assets
    Section __.106(a)(3) of the proposed rule would assign a 10 percent 
RSF factor to a secured lending transaction \58\ with a financial 
sector entity or a consolidated subsidiary thereof that matures within 
six months of the calculation date and is secured by level 1 liquid 
assets that are rehypothecatable for the duration of the secured 
lending transaction.
---------------------------------------------------------------------------

    \58\ The proposed rule would modify the definition of ``secured 
lending transaction'' that is currently in the LCR rule, as 
described in section I.D of this SUPPLEMENTARY INFORMATION section.
---------------------------------------------------------------------------

    The proposed rule would require a covered company to support short-
term lending between financial institutions, where the transaction is 
secured by rehypothecatable level 1 liquid assets, with a lower amount 
of available stable funding, relative to most other asset classes, 
because of a covered company's ability to monetize the level 1 liquid 
asset collateral for the duration of the transaction. Because of the 
financial nature of the counterparty, a transaction of this type also 
presents relatively lower reputational risk to a covered company if it 
chooses not to roll over the transaction when it matures, as discussed 
in section II.D.2 of this Supplementary Information section.
    As provided in Sec.  __.106(d) of the proposed rule and discussed 
in section II.D.3.d of this SUPPLEMENTARY INFORMATION section, the RSF 
factor applicable to a transaction in this category may increase if the 
covered company rehypothecates the level 1 liquid asset collateral 
securing the transaction for a period with more than six months 
remaining from the calculation date.
iv. 15 Percent RSF Factor
Unencumbered Level 2A Liquid Assets
    Section __.106(a)(4)(i) of the proposed rule would assign a 15 
percent RSF factor to level 2A liquid assets, as set forth in Sec.  
__.20(b) of the LCR rule, but would not take into consideration the 
requirements in Sec.  __.22 or the level 2 cap in Sec.  __.21. As set 
forth in the LCR rule, level 2A liquid assets include certain 
obligations issued or guaranteed by a U.S. government-sponsored 
enterprise (GSE) and certain obligations issued or guaranteed by a 
sovereign entity or a multilateral development bank. The LCR rule 
requires these securities to be liquid and

[[Page 35144]]

readily-marketable, as defined in Sec.  __.3, to qualify as level 2A 
liquid assets.
    The proposed rule would assign a 15 percent RSF factor to level 2A 
liquid assets based on the characteristics of these assets, including 
their high credit quality. This factor would reflect the relatively 
high level of liquidity of these assets compared to most other asset 
classes, but lower liquidity than level 1 liquid assets. For example, 
mortgage-backed securities issued by U.S. GSEs (a widely held form of 
level 2A liquid assets) have a higher credit quality, higher average 
daily trading volume, and lower bid-ask spreads relative to corporate 
debt securities.
Secured Lending Transactions and Unsecured Wholesale Lending With a 
Financial Sector Entity or a Subsidiary Thereof That Mature Within Six 
Months
    Section __.106(a)(4)(ii) of the proposed rule would assign a 15 
percent RSF factor to a secured lending transaction with a financial 
sector entity or a consolidated subsidiary thereof that is secured by 
assets other than rehypothecatable level 1 liquid assets and matures 
within six months of the calculation date. It would assign the same RSF 
factor to unsecured wholesale lending to a financial sector entity or a 
consolidated subsidiary thereof that matures within six months of the 
calculation date.\59\ Such transactions present relatively lower 
liquidity risk because of their shorter tenors relative to loans with a 
longer remaining maturity, providing for cash inflows upon repayment of 
the loan, and generally present lower reputational risk if a covered 
company chooses not to roll over the transaction because of the 
financial nature of the counterparties, as discussed in section II.D.2 
above. Therefore, the proposed rule would assign a lower RSF factor to 
these assets than it would to longer-term loans to similar 
counterparties or to similar-term loans to non-financial 
counterparties, as described in sections II.D.3.a.v through 
II.D.3.a.vii below.
---------------------------------------------------------------------------

    \59\ As noted supra note 37 for purposes of determining ASF and 
RSF factors assigned to assets, commitments, and liabilities where 
counterparty is relevant, the proposed rule would treat an 
unconsolidated affiliate of a covered company as a financial sector 
entity.
---------------------------------------------------------------------------

    The proposed rule would assign a higher RSF factor to these 
transactions, however, than it would to a secured lending transaction 
with a similar maturity and similar counterparty type that is secured 
by level 1 liquid assets that are rehypothecatable for the duration of 
the transaction. As described in section II.D.3.a.iii above, the 
proposed rule would not require a covered company to fund a transaction 
secured by rehypothecatable level 1 liquid assets with the same level 
of available stable funding because of the increased liquidity benefit 
to the covered company from its ability to monetize the level 1 liquid 
assets securing the transaction for the duration of the transaction.
v. 50 Percent RSF Factor
Unencumbered Level 2B Liquid Assets
    Section __.106(a)(5)(i) of the proposed rule would assign a 50 
percent RSF factor to level 2B liquid assets, as set forth in Sec.  
__.20(c) of the LCR rule, but would not take into consideration the 
requirements in Sec.  __.22 or the level 2 caps in Sec.  __.21. Level 
2B liquid assets include certain publicly traded corporate debt 
securities and certain publicly traded common equity shares that are 
liquid and readily-marketable.\60\
---------------------------------------------------------------------------

    \60\ The agencies note that nothing in the proposed rule would 
grant a covered company the authority to engage in activities 
relating to debt securities and equities not otherwise permitted by 
applicable law.
---------------------------------------------------------------------------

    Section __.20 of the LCR rule requires an asset to meet certain 
criteria to qualify as a level 2B liquid asset. For example, equity 
securities must be part of a major index and corporate debt securities 
must be ``investment grade'' under 12 CFR part 1.\61\ Therefore, the 
proposed rule would assign a lower RSF factor to these assets than it 
would assign to non-HQLA. The proposed rule would assign a higher RSF 
factor to level 2B liquid assets, however, than it would to level 1 and 
level 2A liquid assets, based on level 2B liquid assets' relatively 
higher credit risk, lower trading volumes, and elevated price 
volatility. For example, Russell 1000 equities, as a class, have lower 
average daily trading volume and higher price volatility than U.S. 
Treasury securities and mortgage-backed securities issued by U.S. GSEs. 
Similarly, investment grade corporate bonds have higher credit risk and 
lower average daily trading volume relative to level 1 and level 2A 
liquid assets. At the same time, the market for level 2B liquid assets 
is more liquid than the secondary market for longer-term loans, in 
terms of, for example, average daily trading volume. Accordingly, the 
proposed rule would assign a 50 percent RSF factor to a covered 
company's level 2B liquid assets.
---------------------------------------------------------------------------

    \61\ 12 CFR 1.2(d). In accordance with section 939A of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, Public Law 
111-203, 124 Stat. 1376, 1887 (2010) Sec.  939A, codified at 15 
U.S.C. 78o-7, the LCR rule does not rely on credit ratings as a 
standard of creditworthiness. Rather, the LCR rule relies on an 
assessment by the covered company of the capacity of the issuer of 
the corporate debt security to meet its financial commitments.
---------------------------------------------------------------------------

Secured Lending Transactions and Unsecured Wholesale Lending to a 
Financial Sector Entity or a Subsidiary Thereof or a Central Bank That 
Mature in Six Months or More, but Less Than One Year
    Section __.106(a)(5)(ii) of the proposed rule would assign a 50 
percent RSF factor to a secured lending transaction or unsecured 
wholesale lending that matures in six months or more, but less than one 
year from the calculation date, where the counterparty is a financial 
sector entity or a consolidated subsidiary thereof or the counterparty 
is a central bank.\62\ As discussed above, a covered company faces 
lower reputational risk if it chooses not to roll over these loans to 
financial counterparties or claims on a central bank than it would with 
loans to non-financial counterparties. However, these loans have longer 
terms--beyond six months--which means that liquidity from principal 
repayments will not be available in the near term. Therefore, these 
loans require more stable funding than shorter-term loans, which would 
be assigned a lower RSF factor, as discussed above. At the same time, 
given that these loans mature within the NSFR's one-year time horizon, 
the proposed rule would not require them to be fully supported by 
stable funding and would assign them a 50 percent RSF factor.
---------------------------------------------------------------------------

    \62\ As noted supra note 37 for purposes of determining ASF and 
RSF factors assigned to assets, commitments, and liabilities where 
counterparty is relevant, the proposed rule would treat an 
unconsolidated affiliate of a covered company as a financial sector 
entity.
---------------------------------------------------------------------------

Operational Deposits Held at Financial Sector Entities.
    Section __.106(a)(5)(iii) of the proposed rule would assign a 50 
percent RSF factor to an operational deposit, as defined in Sec.  __.3, 
placed by the covered company at another financial sector entity. 
Consistent with the reasoning for the ASF factor assigned to 
operational deposits held at a covered company, described in section 
II.C of this Supplementary Information section, such operational 
deposits placed by a covered company are less readily monetizable by 
the covered company. These deposits are placed for operational 
purposes, and a covered company would face legal or operational 
limitations to making significant withdrawals during the NSFR's one-
year time horizon. Thus, the proposed rule would assign a 50 percent 
RSF factor to these operational deposits.

[[Page 35145]]

General Obligation Securities Issued by a Public Sector Entity
    Section __.106(a)(5)(iv) of the proposed rule would assign a 50 
percent RSF factor to general obligation securities issued by, or 
guaranteed as to the timely payment of principal and interest by, a 
public sector entity.\63\ Consistent with the definition of ``general 
obligation'' in the agencies' risk-based capital rules, a general 
obligation security is a bond or similar obligation backed by the full 
faith and credit of a public sector entity.\64\ Securities that are not 
backed by the full faith and credit of a public sector entity, 
including revenue bonds, would not be considered general obligation 
securities.
---------------------------------------------------------------------------

    \63\ On April 1, 2016, the Board finalized an amendment to the 
Board's LCR rule to include certain municipal securities as level 2B 
liquid assets. 81 FR 21223 (April 11, 2016). As a result of this 
amendment, certain municipal securities held by covered companies 
that are Board-regulated institutions would be assigned the 50 
percent RSF factor as level 2B liquid assets, notwithstanding this 
proposed treatment for all general obligation municipal securities.
    \64\ See 12 CFR 3.2 (OCC), 12 CFR 217.2 (Board), and 12 CFR 
324.2 (FDIC).
---------------------------------------------------------------------------

    U.S. general obligation securities issued by a public sector 
entity,\65\ which are backed by the general taxing authority of the 
issuer, are assigned a risk weight of 20 percent under subpart D of the 
agencies' risk-based capital rules.\66\ These securities have more 
favorable credit risk characteristics than exposures that would receive 
a risk weight greater than 20 percent under the agencies' risk-based 
capital rules, such as revenue bonds, which are assigned a 50 percent 
risk weight.\67\ Revenue bonds depend on revenue from a single source, 
or a limited number of sources, and therefore present greater credit 
risk relative to a U.S. general obligation security issued by a public 
sector entity. As discussed in section II.D.2 of this Supplementary 
Information section, high credit quality generally indicates that an 
asset will maintain liquidity, as market participants tend to be more 
willing to purchase higher credit quality assets across a range of 
market and economic conditions. Accordingly, the proposed rule would 
only assign a 50 percent RSF factor to those securities issued by a 
U.S. public sector entity with sufficiently high credit quality, which 
is reflected by the fact that they are assigned a risk weight of no 
greater than 20 percent under the standardized approach in the 
agencies' risk-based capital rules. Because the agencies expect that 
covered companies will be able to at least partially monetize these 
securities within the proposed rule's one-year time horizon, the 
proposed rule would not require a covered company to fully support 
these securities with stable funding.
---------------------------------------------------------------------------

    \65\ Section __.3 of the LCR rule defines a ``public sector 
entity'' as a state, local authority, or other governmental 
subdivision below the U.S. sovereign entity level.
    \66\ See 12 CFR 3.32(e)(1)(i) (OCC), 12 CFR 217.32(e)(1)(i) 
(Board), and 12 CFR 324.32(e)(1)(i) (FDIC).
    \67\ See 12 CFR 3.32(e)(1)(ii) (OCC), 12 CFR 217.32(e)(1)(ii) 
(Board), and 12 CFR 324.32(e)(1)(ii) (FDIC).
---------------------------------------------------------------------------

Secured Lending Transactions and Unsecured Wholesale Lending to 
Counterparties That Are Not Financial Sector Entities and Are Not 
Central Banks and That Mature in Less Than One Year
    Section __.106(a)(5)(v) of the proposed rule would assign a 50 
percent RSF factor to lending to a wholesale customer or counterparty 
that is not a financial sector entity or central bank, including a non-
financial corporate, sovereign, or public sector entity, that matures 
in less than one year from the calculation date. Unlike with lending to 
financial sector entities and central banks, the proposed rule would 
assign the same RSF factor to lending with a remaining maturity of less 
than six months as it would assign to lending with a remaining maturity 
of six months or more, but less than one year. This treatment reflects 
the fact that a covered company is likely to have stronger incentives 
to continue to lend to these counterparties due to reputational risk 
and a covered company's need to maintain its franchise value, even when 
the lending is scheduled to mature in the nearer term, as discussed in 
section II.D.2 of this Supplementary Information section. Because of 
that need to continue lending for reputational reasons or the longer 
term of certain of these loans, the proposed rule would require 
significant stable funding to support such lending. However, the 
proposed rule would not require this lending to be fully supported by 
stable funding, based on its maturity within the NSFR's one-year time 
horizon and the assumption that a covered company may be able to reduce 
its lending to some degree over the NSFR's one-year time horizon. Thus, 
the proposed rule would assign an RSF factor of 50 percent to lending 
in this category.
Lending to Retail Customers and Counterparties That Matures in Less 
Than One Year
    Section __.106(a)(5)(v) of the proposed rule would assign a 50 
percent RSF factor to lending to retail customers or counterparties 
(including certain small businesses), as defined in Sec.  __.3 of the 
LCR rule, for the same reputational and franchise value maintenance 
reasons for which it would assign a 50 percent RSF factor to lending to 
wholesale customers and counterparties that are not financial sector 
entities or central banks, as discussed in section II.D.2 of this 
Supplementary Information section.
All Other Assets That Mature in Less Than One Year
    Section __.106(a)(5)(v) of the proposed rule would assign a 50 
percent RSF factor to all other assets that mature within one year of 
the calculation date but are not described in the categories above. The 
shorter maturity of an asset in this category reduces its liquidity 
risk, since it provides for cash inflows upon repayment during the 
NSFR's one-year time horizon. However, a covered company may not be 
able to readily monetize assets that are not part of one of the 
identified asset classes addressed in the other provisions of the 
proposed rule. Thus, the proposed rule would require stable funding to 
support these assets by assigning a 50 percent RSF factor.
vi. 65 Percent RSF Factor
Retail Mortgages That Mature in One Year or More and Are Assigned a 
Risk Weight of No Greater Than 50 Percent
    Section __.106(a)(6)(i) of the proposed rule would assign a 65 
percent RSF factor to retail mortgages that mature one year or more 
from the calculation date and are assigned a risk weight of no greater 
than 50 percent under subpart D of the agencies' risk-based capital 
rules. Under the agencies' risk-based capital rules, residential 
mortgage exposures secured by a first lien on a one-to-four family 
property that are prudently underwritten, are not 90 days or more past 
due or carried in nonaccrual status, and that are neither restructured 
nor modified generally receive a 50 percent risk weight.\68\ These 
mortgage loans should be easier to monetize because of their less risky 
nature compared to mortgage loans that have a risk weight greater than 
50 percent, but generally are not as liquid as lending that matures 
within the NSFR's one-year time horizon. Thus, the proposed rule would 
require a

[[Page 35146]]

substantial amount of stable funding to support these assets by 
assigning a 65 percent RSF factor to them.
---------------------------------------------------------------------------

    \68\ See 12 CFR 3.32(g) (OCC), 12 CFR 217.32(g) (Board), and 12 
CFR 324.32(g) (FDIC). The proposed rule would be consistent with the 
Basel III NSFR, which assigns a 65 percent RSF factor to residential 
mortgages that receive a 35 percent risk weight under the Basel II 
standardized approach for credit risk, because the agencies' risk-
based capital rules assign a 50 percent risk weight to residential 
mortgage exposures that meet the same criteria as those that receive 
a 35 percent risk weight under the Basel II standardized approach 
for credit risk.
---------------------------------------------------------------------------

Secured Lending Transactions, Unsecured Wholesale Lending, and Lending 
to Retail Customers and Counterparties That Mature in One Year or More 
and Are Assigned a Risk Weight of No Greater Than 20 Percent
    Section __.106(a)(6)(ii) of the proposed rule would assign a 65 
percent RSF factor to secured lending transactions, unsecured wholesale 
lending, and lending to retail customers and counterparties that are 
not otherwise assigned an RSF factor, that mature one year or more from 
the calculation date, that are assigned a risk weight of no greater 
than 20 percent under subpart D of the agencies' risk-based capital 
rules, and where the borrower is not a financial sector entity or a 
consolidated subsidiary thereof.\69\ These loans have more favorable 
liquidity characteristics because of their less risky nature compared 
to similar loans that have a risk weight greater than 20 percent. 
However, more stable funding would be required than for lending that 
matures and provides liquidity within the NSFR's one-year time horizon.
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    \69\ See 12 CFR 3.32 (OCC), 12 CFR 217.32 (Board), and 12 CFR 
324.32 (FDIC). The proposed rule would be consistent with the Basel 
III NSFR, which assigns a 65 percent RSF factor to loans that 
receive a 35 percent or lower risk weight under the Basel II 
standardized approach for credit risk, because the standardized 
approach in the agencies' risk-based capital rules does not assign a 
risk weight that is between 20 and 35 percent to such loans.
---------------------------------------------------------------------------

vii. 85 Percent RSF Factor
Retail Mortgages That Mature in One Year or More and Are Assigned a 
Risk Weight of Greater Than 50 Percent
    Section __.106(a)(7)(i) of the proposed rule would assign an 85 
percent RSF factor to retail mortgages that mature one year or more 
from the calculation date and are assigned a risk weight of greater 
than 50 percent under subpart D of the agencies' risk-based capital 
rules. As noted above, under subpart D of the agencies' risk-based 
capital rules, a retail mortgage is assigned a risk weight of 50 
percent if it is secured by a first lien on a one-to-four family 
property, prudently underwritten, not 90 days or more past due or 
carried in nonaccrual status, and has not been restructured or 
modified.\70\ Mortgages that do not meet these criteria are assigned a 
risk weight of greater than 50 percent.\71\ Because these exposures are 
generally riskier than mortgages that receive a risk weight of 50 
percent or less and may, as a result, be more difficult to monetize, 
the proposed rule would require that they be supported by more stable 
funding and would assign an 85 percent RSF factor to them.
---------------------------------------------------------------------------

    \70\ See supra note 68.
    \71\ Under the agencies' risk-based capital rules, the risk 
weight on mortgages may be reduced to less than 50 percent if 
certain conditions are satisfied. In these cases, the proposed rule 
would assign an RSF factor of 65 percent, which is the RSF factor 
assigned to retail mortgages that mature in one year or more and are 
assigned a risk weight of no greater than 50 percent. See 12 CFR 
3.36 (OCC), 12 CFR 217.36 (Board), and 12 CFR 324.36 (FDIC).
---------------------------------------------------------------------------

Secured Lending Transactions, Unsecured Wholesale Lending, and Lending 
to Retail Customers and Counterparties That Mature in One Year or More 
and Are Assigned a Risk Weight of Greater Than 20 Percent
    Section __.106(a)(7)(ii) of the proposed rule would assign an 85 
percent RSF factor to secured lending transactions, unsecured wholesale 
lending, and lending to retail customers and counterparties that are 
not otherwise assigned an RSF factor (such as retail mortgages), that 
mature one year or more from the calculation date, that are assigned a 
risk weight greater than 20 percent under subpart D of the agencies' 
risk-based capital rules, and for which the borrower is not a financial 
sector entity or consolidated subsidiary thereof. These loans involve 
riskier exposures than similar loans with lower risk weights, and thus, 
have less favorable liquidity characteristics. Accordingly, the 
proposed rule would require a covered company to support this lending 
with more stable funding relative to loans that have lower risk weights 
or that are shorter term.
Publicly Traded Common Equity Shares That Are Not HQLA and Other 
Securities That Mature in One Year or More That Are Not HQLA
    Sections __.106(a)(7)(iii) and (iv) of the proposed rule would 
assign an 85 percent RSF factor to publicly traded common equity shares 
that are not HQLA and other non-HQLA securities that mature one year or 
more from the calculation date, which includes, for example, certain 
corporate debt securities, as well as private-label mortgage-backed 
securities, other asset-backed securities, and covered bonds. Relative 
to securities that are HQLA, these securities have less favorable 
credit and liquidity characteristics, as they do not meet the criteria 
required by the LCR rule to be treated as HQLA, such as the requirement 
that they be investment grade and liquid and readily-marketable. For 
example, high yield corporate debt securities that do not meet the 
investment grade criterion in the LCR rule to be treated as HQLA 
generally have a higher price volatility than other corporate bonds 
that qualify as HQLA. Despite the less liquid nature of these 
securities, however, they are tradable and can to some degree be 
monetized in the secondary market, so the proposed rule would assign an 
RSF factor of 85 percent to these assets.
Commodities
    Section __.106(a)(7)(v) of the proposed rule would assign an 85 
percent RSF factor to commodities held by a covered company for which a 
liquid market exists, as indicated by whether derivative transactions 
for the commodity are traded on a U.S. board of trade or trading 
facility designated as a contract market (DCM) under sections 5 and 6 
of the Commodity Exchange Act\72\ or on a U.S. swap execution facility 
(SEF) registered under section 5h of the Commodity Exchange Act.\73\ 
The proposal would assign a 100 percent RSF factor to all other 
commodities held by a covered company. In general, commodities as an 
asset class have historically experienced greater price volatility than 
other asset classes. As such, the proposed rule would require a covered 
company to support its commodities positions with a substantial amount 
of stable funding.
---------------------------------------------------------------------------

    \72\ 7 U.S.C. 7 and 7 U.S.C. 8.
    \73\ 7 U.S.C. 7b-3.
---------------------------------------------------------------------------

    The proposed rule would assign an 85 percent RSF factor, rather 
than a 100 percent RSF factor, to commodities for which derivative 
transactions are traded on a U.S. DCM or U.S. SEF because the exchange 
trading of derivatives on a commodity tends to indicate a greater 
degree of standardization, fungibility, and liquidity in the market for 
the commodity.\74\ For instance, a market for a commodity for which a 
derivative transaction is traded on a U.S. DCM or U.S. SEF is more 
likely to have established standards (for example, with respect to 
different grades of commodities) that are relied upon in determining 
the commodities that can be provided to effect physical settlement 
under a derivative transaction. In addition, the exchange-traded market 
for a commodity derivative transaction generally increases price 
transparency for the underlying commodity. A covered company could 
therefore more easily monetize a commodity that meets this requirement 
than a commodity that does not, either through the spot market or 
through derivative transactions based on the commodity. The proposed 
rule

[[Page 35147]]

would accordingly require less stable funding to support holdings of 
commodities for which derivative transactions are traded on a U.S. DCM 
or U.S. SEF than it would require for other commodities, which a 
covered company may not be able to monetize as easily.
---------------------------------------------------------------------------

    \74\ Examples of commodities that currently meet this 
requirement are gold, oil, natural gas, and various agricultural 
products.
---------------------------------------------------------------------------

    The agencies note that nothing in the proposed rule would grant a 
covered company the authority to engage in any activities relating to 
commodities not otherwise permitted by applicable law.
    Commodities that would be assigned an 85 percent RSF factor do not 
include commodity derivatives, which would be included with other 
derivatives under Sec.  __.107 of the proposed rule.
    Question 26: What, if any, commodities are traded in a liquid 
market, but for which there is not a derivative transaction traded on a 
U.S. DCM or U.S. SEF, such that the commodity should qualify for an 85 
percent RSF factor, rather than a 100 percent RSF factor?
    Question 27: What, if any, commodities would be assigned an 85 
percent RSF factor under the proposed rule that should instead be 
assigned a 100 percent RSF factor?
    Question 28: The Basel III NSFR assigns an RSF factor of 85 percent 
to secured lending transactions, unsecured wholesale lending, and 
lending to retail customers and counterparties that mature in one year 
or more and are assigned a risk weight of greater than 35 percent, 
whereas the proposed rule would assign an 85 percent RSF factor to the 
set of these transactions that are assigned a risk weight of greater 
than 20 percent. What assets, if any, receive a risk weight between 20 
and 35 percent under the standardized approach in the agencies' risk-
based capital rules and should be assigned a 65 percent RSF factor, 
instead of an 85 percent RSF factor?
viii. 100 Percent RSF Factor
All Other Assets Not Described Above
    Section __.106(a)(8) of the proposed rule would assign a 100 
percent RSF factor to all other assets not otherwise assigned an RSF 
factor under Sec.  __.106 or Sec.  __.107. These assets include, but 
are not limited to, loans to financial institutions (including to an 
unconsolidated affiliate) that mature in one year or more; assets 
deducted from regulatory capital; \75\ common equity shares that are 
not traded on a public exchange; unposted debits; and trade date 
receivables that have failed to settle within the lesser of the market 
standard settlement period for the relevant type of transaction, 
without extension of the standard settlement period, and five business 
days from the date of the sale. All assets that are not otherwise 
assigned an RSF factor of less than 100 percent may not consistently 
exhibit liquidity characteristics that would suggest a covered company 
should support them with anything less than full stable funding.
---------------------------------------------------------------------------

    \75\ Assets deducted from regulatory capital include, but are 
not limited to, goodwill, deferred tax assets, mortgage servicing 
assets, and defined benefit pension fund net assets. 12 CFR 3.22 
(OCC), 12 CFR 217.22 (Board), and 12 CFR 324.22 (FDIC). These 
assets, as a class, tend to be difficult for a covered company to 
readily monetize.
---------------------------------------------------------------------------

    Question 29: The agencies invite comment on all aspects of the RSF 
calculation and the assignment of RSF factors to various assets, 
derivative exposures, and commitments. For example, what issues of 
domestic and international competitive equity, if any, might be raised 
by the proposed assignment of RSF factors? Is the proposed RSF amount 
calculation adequate to meet the agencies' goal of ensuring covered 
companies maintain appropriate amounts of stable funding? Why or why 
not? Provide detailed explanations and supporting data.
b. Nonperforming Assets
    Section __.106(b) of the proposed rule would assign a 100 percent 
RSF factor to any asset on a covered company's balance sheet that is 
past due by more than 90 days or nonaccrual.\76\ Because cash inflows 
from these assets have an elevated risk of non-payment, these assets 
tend to be illiquid. The proposed rule would therefore require a 
covered company to fully support them with stable funding, in order to 
reduce its risk of having to liquidate them at a discount.
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    \76\ The proposed rule's description of nonperforming assets in 
Sec.  __.106(b) would be consistent with the definition of 
``nonperforming exposure'' in Sec.  __.3 of the LCR rule.
---------------------------------------------------------------------------

c. Treatment of Encumbered Assets
    Under the proposed rule, the RSF factor assigned to an asset would 
depend on whether or not the asset is encumbered. As discussed in 
section I.D of this SUPPLEMENTARY INFORMATION section, the proposed 
rule would define ``encumbered'' (a newly defined term under Sec.  
__.3), as the converse of the term ``unencumbered'' currently used in 
the LCR rule.
    Encumbered assets generally cannot be monetized during the period 
in which they are encumbered. Thus, the proposed rule would require 
encumbered assets to be supported by stable funding depending on the 
tenor of the encumbrance. An asset that is encumbered for less than six 
months from the calculation date would be assigned the same RSF factor 
as would be assigned to the asset if it were unencumbered. Because a 
covered company will have access to the asset and the ability to 
monetize it in the near term (i.e., within six months), the proposed 
rule would not require additional stable funding to support it as a 
result of the encumbrance.
    An asset that is encumbered for a period of six months or more, but 
less than one year, would be assigned an RSF factor equal to the 
greater of 50 percent and the RSF factor the asset would be assigned if 
it were not encumbered. This treatment would reflect a covered 
company's more limited ability to monetize an asset that is subject to 
an encumbrance period of this length and the corresponding need to 
support the asset with additional stable funding. For an asset that 
would receive an RSF factor of less than 50 percent if it were 
unencumbered, an RSF factor of 50 percent reflects the covered 
company's reduced ability to monetize the asset in the near term. For 
example, a security issued by a U.S. GSE that a covered company has 
encumbered for a remaining period of six months or more, but less than 
one year, would be assigned a 50 percent RSF factor, rather than the 15 
percent RSF factor that would be assigned if the security were 
unencumbered. For an asset that would receive an RSF factor of greater 
than 50 percent if it were unencumbered, the proposed rule's treatment 
would reflect the less liquid nature of the asset, which an encumbrance 
period of less than one year would only marginally make less liquid. 
For example, a non-HQLA security would continue to be assigned an 85 
percent RSF factor if it is encumbered for a remaining period of six 
months or more, but less than one year.
    The proposed rule would assign a 100 percent RSF factor to an asset 
that is encumbered for a remaining period of one year or more because 
the asset would be unavailable to the covered company for the entirety 
of the NSFR's one-year time horizon, so it should be fully supported by 
stable funding. Table 1 sets forth the RSF factors for assets that are 
encumbered.

[[Page 35148]]



               Table 1--RSF Factors for Encumbered Assets
------------------------------------------------------------------------
                                                               Asset
                                    Asset encumbered >=6    encumbered
    Asset encumbered <6 months         months <1 year        >=1 year
                                                             (percent)
------------------------------------------------------------------------
If RSF factor for unencumbered
 asset is <=50 percent:
    RSF factor for the asset as if  50 percent..........             100
     it were unencumbered.
If RSF factor for unencumbered
 asset is > 50 percent:
    RSF factor for the asset as if  RSF factor for the               100
     it were unencumbered.           asset as if it were
                                     unencumbered.
------------------------------------------------------------------------

    Under the proposed rule, the duration of an encumbrance of an asset 
may exceed the maturity of that asset, as short-dated assets may 
provide support for longer-dated transactions where the short-dated 
asset would have to be replaced upon its maturity. Because of this 
required replacement, a covered company would have to continue funding 
an eligible asset for the entirety of the encumbrance period. In these 
cases, although the maturity of the asset is short-term, because the 
asset provides support for a longer-dated transaction, the encumbrance 
period more accurately represents the duration of the covered company's 
funding requirement. For example, a U.S. Treasury security that matures 
in three months that is used as collateral in a one-year repurchase 
agreement would need to be replaced upon the maturity of the security 
with an asset that meets the requirements of the repurchase agreement. 
Thus, even though the collateral is short-dated, a covered company 
would need to fully support an asset with stable funding for the 
duration of the one-year repurchase agreement, so the required stable 
funding would be based on a one-year encumbrance period.
Assets Held in Certain Customer Protection Segregated Accounts
    Section __.106(c)(3) of the proposed rule specifies how a covered 
company would determine the RSF amount associated with an asset held in 
a segregated account maintained pursuant to statutory or regulatory 
requirements for the protection of customer assets. Specifically, the 
proposed rule would require a covered company to assign an RSF factor 
to an asset held in a segregated account of this type equal to the RSF 
factor that would be assigned to the asset under Sec.  __.106 as if it 
were not held in a segregated account. For example, the proposed rule 
would not consider an asset held pursuant to the SEC's Rule 15c3-3 \77\ 
or the Commodity Futures Trading Commission's Rule 1.20 or Part 22 \78\ 
to be encumbered solely because it is held in a segregated account. 
Because the inability to monetize the assets in a segregated account is 
primarily based on the decisions and behaviors of a customer relating 
to the purpose for which the customer holds the account, the proposed 
rule would not treat the restriction as a longer-term encumbrance. For 
example, customer free credits, which are customer funds held prior to 
their investment, must be segregated until the customer decides to 
invest or withdraw the funds, so the duration of the restriction is 
solely based on the behavior of the customer. Accordingly, the proposed 
rule would treat cash that a covered company places on deposit with a 
third-party depository institution in accordance with segregation 
requirements as a short-term loan to a financial sector entity, which 
would be assigned a 15 percent RSF factor. Similarly, U.S. Treasury 
securities held by a covered company in a segregated account pursuant 
to applicable customer protection requirements would be assigned a 5 
percent RSF factor.
---------------------------------------------------------------------------

    \77\ 17 CFR 240.15c3-3.
    \78\ 17 CFR 1.20; 17 CFR part 22.
---------------------------------------------------------------------------

d. Treatment of Rehypothecated Off-Balance Sheet Assets
    Section __.106(d) of the proposed rule specifies how a covered 
company would determine the RSF amount for a transaction involving 
either an off-balance sheet asset that secures an NSFR liability or the 
sale of an off-balance sheet asset that results in an NSFR liability 
(for instance, in the case of a short sale). For example, a covered 
company may obtain a security as collateral in a lending transaction 
(such as a reverse repurchase agreement) with rehypothecation rights 
and subsequently pledge the security in a borrowing transaction (such 
as a repurchase agreement). Under this arrangement, it may be the case 
that the asset obtained and pledged by the covered company is not 
included on the covered company's balance sheet under GAAP, in which 
case the asset would not have a carrying value that would be assigned 
an RSF factor under Sec.  __.106(a) of the proposed rule.\79\ 
Nevertheless, such arrangements still affect a covered company's 
liquidity risk profile. In cases where a covered company has 
rehypothecated the off-balance sheet collateral, it has reduced its 
ability to monetize or recognize inflows from the lending transaction 
for the duration of the rehypothecation.
---------------------------------------------------------------------------

    \79\ See Sec.  __.102(a) of the proposed rule (rules of 
construction), as described in section II.A.1 of this SUPPLEMENTARY 
INFORMATION section.
---------------------------------------------------------------------------

    For example, if a covered company obtains a security as collateral 
in a lending transaction and rehypothecates the security as collateral 
in a borrowing transaction, the covered company may need to roll over 
the lending transaction if it matures before the borrowing transaction. 
Alternatively, the covered company would need to obtain a replacement 
asset for the rehypothecated collateral to return to the counterparty 
under the lending transaction. At the same time, the NSFR liability 
generated by the borrowing transaction could increase the covered 
company's ASF amount, depending on the maturity and other 
characteristics of the NSFR liability and, absent the proposed 
treatment in Sec.  __.106(d), the proposed rule would not properly 
account for the covered company's increased funding risk.
    Section __.106(d) of the proposed rule would address these 
considerations based on the manner in which the covered company 
obtained the off-balance sheet asset: Through a lending transaction, 
asset exchange, or other transaction.
    Under Sec.  __.106(d)(1) of the proposed rule, if a covered company 
has obtained the off-balance sheet asset under a lending transaction, 
the proposed rule would treat the lending transaction as encumbered for 
the longer of (1) the remaining maturity of the NSFR liability secured 
by the off-balance sheet asset or resulting from the sale of the off-
balance asset, as the case may be, and (2) any other encumbrance period 
already applicable to the lending transaction. For example, Sec.  
__.106(d)(1) would apply if a covered company obtains a level 2A

[[Page 35149]]

liquid asset as collateral under an overnight reverse repurchase 
agreement with a financial counterparty, and subsequently pledges the 
level 2A liquid asset as collateral in a repurchase transaction with a 
maturity of one year or more, but does not include the level 2A liquid 
asset on its balance sheet. In this case, the proposed rule would treat 
the balance-sheet receivable associated with the reverse repurchase 
agreement as encumbered for a period of one year or more, since the 
remaining maturity of the repurchase agreement secured by the 
rehypothecated level 2A liquid is one year or more. Accordingly, the 
proposed rule would assign the reverse repurchase agreement an RSF 
factor of 100 percent instead of 15 percent. Under this example, the 
proposed rule would require the covered company to maintain additional 
stable funding to account for its need to roll over the overnight 
reverse repurchase agreement for the duration of the repurchase 
agreement's maturity or obtain an alternative level 2A liquid asset to 
return to the counterparty under the reverse repurchase agreement.
    Under Sec.  __.106(d)(2) of the proposed rule, if a covered company 
has obtained the off-balance sheet asset under an asset exchange, the 
proposed rule would treat the asset provided by the covered company in 
the asset exchange as encumbered for the longer of (1) the remaining 
maturity of the NSFR liability secured by the off-balance sheet asset 
or resulting from the sale of the off-balance asset, as the case may 
be, and (2) any encumbrance period already applicable to the provided 
asset. For example, Sec.  __.106(d)(2) of the proposed rule would apply 
if a covered company, acting as a securities borrower, provides a level 
2A liquid asset and obtains a level 1 liquid asset under an asset 
exchange with a remaining maturity of six months, and subsequently 
provides the level 1 liquid asset as collateral to secure a repurchase 
agreement that matures in one year or more without including the level 
1 liquid asset on its balance sheet.\80\ In this case, under Sec.  
__.106(d)(2), the proposed rule would treat the level 2A liquid asset 
provided by the covered company as encumbered for a period of one year 
or more (equal to the remaining maturity of the repurchase agreement 
secured by the rehypothecated level 1 liquid asset) instead of six 
months (equal to the remaining maturity of the asset exchange) and 
would assign an RSF factor of 100 percent instead of 50 percent to the 
level 2A liquid asset. In this case, the proposed rule would require 
the covered company to maintain additional stable funding to account 
for its need to roll over the asset exchange for the duration of the 
secured funding transaction's maturity or obtain an alternative level 1 
liquid asset to return to the counterparty under the asset exchange.
---------------------------------------------------------------------------

    \80\ Where a covered company engages in an asset exchange, 
acting as a securities borrower, under GAAP, the asset provided by 
the covered company typically remains on the covered company's 
balance sheet while the received asset, if not rehypothecated, would 
not be on the covered company's balance sheet. To the extent a 
covered company includes on its balance sheet an asset received in 
an asset exchange that the covered company uses as collateral to 
secure a separate NSFR liability, Sec.  __.106(d) would not apply. 
Instead, the asset used as collateral would be assigned an RSF 
factor in the same manner as other assets on the covered company's 
balance sheet (including by taking into account that the asset would 
be encumbered) pursuant to Sec.  __.106(a) through (c) or Sec.  
__.107, as applicable.
---------------------------------------------------------------------------

    If a covered company has an encumbered off-balance sheet asset that 
it did not obtain under either a lending transaction or an asset 
exchange, Sec.  __.106(d)(3) of the proposed rule would require the 
covered company to treat the off-balance sheet asset as if it were on 
the covered company's balance sheet and encumbered for a period equal 
to the remaining maturity of the NSFR liability. This treatment would 
prevent a covered company from recognizing available stable funding 
amounts from the NSFR liability without recognizing corresponding 
required stable funding amounts associated with the encumbered off-
balance sheet asset.
    In cases where a covered company has provided an asset as 
collateral, and the company operationally could have provided either an 
off-balance sheet asset or an identical on-balance sheet asset from its 
inventory, the proposed rule would not restrict the covered company's 
ability to identify either the off-balance sheet asset or the identical 
on-balance sheet asset as the provided collateral, for purposes of 
determining encumbrance treatment under Sec.  __.106(c) and (d). The 
covered company's identification for purposes of Sec.  __.106(c) and 
(d) must be consistent with contractual and other applicable 
requirements and the rest of the covered company's NSFR calculations. 
For example, if a covered company receives a security in a reverse 
repurchase agreement that is identical to a security the covered 
company already owns, and the covered company provides one of these 
securities as collateral to secure a repurchase agreement, the proposed 
rule would not restrict the covered company from identifying, for 
purposes of determining encumbrance treatment under Sec.  __.106(c) and 
(d), either the owned or borrowed security as the collateral for the 
repurchase agreement, provided that the covered company has the 
operational and legal capability to provide either one of the 
securities. If the covered company chooses to treat the off-balance 
sheet security received from the reverse repurchase agreement as the 
collateral securing the repurchase agreement, Sec.  __.106(d)(1) would 
apply and the covered company would treat the reverse repurchase 
agreement as encumbered for purposes of assigning an RSF factor. If the 
covered company instead chooses to treat the owned security as the 
collateral encumbered by the repurchase agreement, the covered company 
would apply the appropriate RSF factor (reflecting the encumbrance) to 
the owned security under Sec.  __.106(c) and no additional encumbrance 
would apply to the reverse repurchase agreement under Sec.  __.106(d). 
The same treatment would apply for a covered company's sale of a 
security and the covered company's ability to identify whether it has 
sold a security from its inventory or an identical security received 
from a lending transaction, asset exchange, or other transaction.
    Question 30: The agencies invite comment on possible alternative 
approaches relating to off-balance sheet assets that secure NSFR 
liabilities of the covered company. Please include discussion as to 
whether and why any alternative approach would more accurately reflect 
a covered company's funding risk, provide greater consistency across 
transactional structures, or be more operationally efficient than the 
approach in Sec.  __.106(d) of the proposed rule.
    Question 31: The agencies request comment on a possible alternative 
that would, instead of applying an additional encumbrance to a related 
on-balance sheet asset, assign an RSF factor to the off-balance sheet 
asset and an ASF factor to an obligation to return the asset as if both 
the off-balance sheet asset and the obligation to return the asset were 
included on the covered company's balance sheet. If adopted, should 
such an alternative apply in all cases, or only where the covered 
company encumbers the asset for a period longer than the maturity of 
the obligation to return it?
    Question 32: Should the approach in Sec.  __.106(d) of the proposed 
rule be modified to more specifically describe how the encumbrance 
treatment would apply if a covered company has rehypothecated only a 
portion of the

[[Page 35150]]

collateral received under a lending transaction or asset exchange?
    Question 33: To the extent a covered company encumbers off-balance 
sheet assets received under a lending transaction or asset exchange and 
the value of the assets exceeds the value of the lending transaction or 
asset provided by the covered company, should an RSF factor be assigned 
to the excess value of the off-balance sheet assets as if they were 
included on the balance sheet of the covered company?
    Question 34: Is it appropriate to apply any encumbrance treatment 
to transactions involving off-balance sheet collateral? Would the 
proposed approach in Sec.  __.106(d) present operational difficulties, 
and if so, what modifications could be made to reduce such 
difficulties? To what extent would operational ease or difficulties 
vary based on the type of transactions involved, such as whether a 
covered company has obtained an off-balance sheet asset from a lending 
transaction or an asset exchange?

E. Derivative Transactions

    Under the proposed rule, a covered company would calculate its 
required stable funding relating to its derivative transactions \81\ 
(its derivatives RSF amount) separately from its other assets and 
commitments.\82\ This calculation would be separate based on the 
generally more complex features of derivative transactions and variable 
nature of derivative exposures. For similar reasons, the proposed rule 
would not separately treat derivatives liabilities as available stable 
funding, as described below. A covered company's derivatives RSF amount 
would reflect three components: (1) The current value of a covered 
company's derivatives assets and liabilities, (2) initial margin 
provided by a covered company pursuant to derivative transactions and 
assets contributed by a covered company to a CCP's mutualized loss 
sharing arrangement in connection with cleared derivative transactions, 
and (3) potential future changes in the value of a covered company's 
derivatives portfolio. Section II.E.7 of this SUPPLEMENTARY INFORMATION 
section below includes an example of a derivatives RSF amount 
calculation.
---------------------------------------------------------------------------

    \81\ As defined in Sec.  __.3 of the LCR rule, ``derivative 
transaction'' means a financial contract whose value is derived from 
the values of one or more underlying assets, reference rates, or 
indices of asset values or reference rates. Derivative contracts 
include interest rate derivative contracts, exchange rate derivative 
contracts, equity derivative contracts, commodity derivative 
contracts, credit derivative contracts, forward contracts, and any 
other instrument that poses similar counterparty credit risks. 
Derivative contracts also include unsettled securities, commodities, 
and foreign currency exchange transactions with a contractual 
settlement or delivery lag that is longer than the lesser of the 
market standard for the particular instrument or five business days. 
A derivative does not include any identified banking product, as 
that term is defined in section 402(b) of the Legal Certainty for 
Bank Products Act of 2000 (7 U.S.C. 27(b)), that is subject to 
section 403(a) of that Act (7 U.S.C. 27a(a)).
    \82\ The proposed rule would include mortgage commitments that 
are derivative transactions in the general derivative transactions 
treatment, in contrast to the LCR rule, which excludes those 
transactions and applies a separate, self-contained mortgage 
treatment. See Sec.  __.32(c) and (d) of the LCR rule.
---------------------------------------------------------------------------

1. NSFR Derivatives Asset or Liability Amount
    Under the proposed rule, the stable funding requirement for the 
current value of a covered company's derivative assets and liabilities 
would be based on an aggregated measure of the covered company's 
derivatives portfolio. As described below, a covered company would sum 
its derivative asset and liability positions across transactions, 
taking into account variation margin.\83\ A covered company would then 
net the derivative asset and liability totals against each other to 
determine whether its portfolio has an overall asset or liability 
position (an NSFR derivatives asset amount or NSFR derivatives 
liability amount, respectively). By netting across different 
counterparties and different derivative transactions (including 
different types of derivative transactions), the proposed rule would 
estimate the overall current position and funding needs associated with 
a covered company's derivatives portfolio in a manner that offers 
operational and administrative efficiencies relative to other 
approaches. In addition, use of a standardized measure would promote 
greater consistency and comparability across covered companies.
---------------------------------------------------------------------------

    \83\ As discussed in section II.E.5 of this SUPPLEMENTARY 
INFORMATION section below, Sec.  __.107(b)(5) of the proposed rule 
would require a covered company, when it calculates its required 
stable funding amount associated with potential future derivatives 
portfolio valuation changes, to disregard settlement payments based 
on changes in the value of its derivative transactions. This 
adjustment would apply only for purposes of the calculation under 
Sec.  __.107(b)(5). Accordingly, a covered company would not exclude 
these settlement payments for purposes of calculating its required 
stable funding amount associated with the current value of its 
derivative transactions under Sec.  __.107(b)(1) and (d) through 
(f).
---------------------------------------------------------------------------

    A covered company would determine its NSFR derivatives asset amount 
or NSFR derivatives liability amount, whichever the case may be, by the 
following calculation steps, which are set forth in Sec.  __.107 of the 
proposed rule:
Step 1: Calculation of Derivatives Asset and Liability Values
    Under Sec.  __.107(f) of the proposed rule, a covered company would 
calculate the asset and liability values of its derivative transactions 
after netting certain variation margin received and provided. For each 
derivative transaction not subject to a qualifying master netting 
agreement and each QMNA netting set of a covered company, the 
derivatives asset value would equal the asset value to the covered 
company after netting any cash variation margin received by the covered 
company that meets the conditions of Sec.  __.10(c)(4)(ii)(C)(1) 
through (7) of the SLR rule,\84\ or the derivatives liability value 
would equal the liability value to the covered company after netting 
any variation margin provided by the covered company. (Each derivative 
transaction not subject to a qualifying master netting agreement and 
each QMNA netting set would have either a derivatives asset value or 
derivatives liability value.)
---------------------------------------------------------------------------

    \84\ 12 CFR 3.10(c)(4)(ii)(C) (OCC), 12 CFR 217.10(c)(4)(ii)(C) 
(Board), and 12 CFR 324.10(c)(4)(ii)(C) (FDIC). See infra note 85.
---------------------------------------------------------------------------

    The proposed rule would restrict netting of variation margin 
received by a covered company but not variation margin provided by a 
covered company for purposes of this calculation in order to prevent 
understatement of the covered company's derivatives RSF amount. For 
variation margin received by a covered company, the proposed rule would 
recognize only netting of cash variation margin because other forms of 
variation margin, such as securities, may have associated risks, such 
as market risk, that are not present with cash. The proposed rule would 
also require variation margin received to meet the conditions of Sec.  
__.10(c)(4)(ii)(C)(1) through (7) the SLR rule in order to be 
recognized as netting the asset value of a derivative transaction.\85\ 
The regular and timely

[[Page 35151]]

exchange of cash variation margin that meets these conditions helps to 
protect a covered company from the effects of a counterparty default.
---------------------------------------------------------------------------

    \85\ Id. These conditions are: (1) Cash collateral received is 
not segregated; (2) variation margin is calculated on a daily basis 
based on mark-to-fair value of the derivative contract; (3) 
variation margin transferred is the full amount necessary to fully 
extinguish the net current credit exposure to the counterparty, 
subject to the applicable threshold and minimum transfer amounts; 
(4) variation margin is cash in the same currency as the settlement 
currency in the contract; (5) the derivative contract and the 
variation margin are governed by a qualifying master netting 
agreement between the counterparties to the contract, which 
stipulates that the counterparties agree to settle any payment 
obligations on a net basis, taking into account any variation margin 
received or provided; (6) variation margin is used to reduce the 
current credit exposure of the derivative contract and not the PFE 
(as that term is defined in the SLR rule); and (7) variation margin 
may not reduce net or gross credit exposure for purposes of 
calculating the Net-to-gross Ratio (as that term is defined in the 
SLR rule).
---------------------------------------------------------------------------

    In contrast to the treatment of variation margin received by a 
covered company, the proposed rule would recognize netting of all forms 
of variation margin provided by a covered company. As described in step 
3 below, a covered company's derivatives liability values would 
ultimately be netted against its derivatives asset values, which are 
assigned a 100 percent RSF factor. Because variation margin provided by 
a covered company reduces its derivatives liability values, a 
limitation on netting variation margin provided would lower a covered 
company's derivatives RSF amount, which would be the opposite effect of 
the proposed rule's limitation on netting variation margin received and 
could lead to an understatement of a covered company's stable funding 
requirement. For this reason, all forms of variation margin provided by 
a covered company would be netted against its derivatives liabilities.
    The proposed rule would not permit a covered company to net initial 
margin provided or received against its derivatives liability or asset 
values as part of its calculation of its NSFR derivatives asset or 
liability amount. Unlike variation margin, which the parties to a 
derivative transaction exchange to account for valuation changes of the 
transaction, initial margin is meant to cover a party's potential 
losses in connection with a counterparty's default (e.g., the cost a 
party would incur to replace the defaulted transaction with a new, 
equivalent transaction with a different counterparty). Therefore, while 
variation margin is relevant to the calculation of the current value of 
a covered company's derivatives portfolio, initial margin would not 
factor into the proposed rule's measure of the current value of a 
covered company's derivatives portfolio. Initial margin would be 
subject to a separate treatment under the proposed rule, as described 
in further detail below.
Step 2: Calculation of Total Derivatives Asset and Liability Amounts
    Under Sec.  __.107(e) of the proposed rule, a covered company would 
sum all of its derivatives asset values, as calculated under Sec.  
__.107(f)(1), to arrive at its ``total derivatives asset amount'' and 
sum all of its derivatives liability values, as calculated under Sec.  
__.107(f)(2), to arrive at its ``total derivatives liability amount.'' 
These amounts would represent the covered company's aggregated 
derivatives assets and liabilities, inclusive of netting certain 
variation margin.
Step 3: Calculation of NSFR Derivatives Asset or Liability Amount
    Under Sec.  __.107(d) of the proposed rule, a covered company would 
net its total derivatives asset amount against its total derivatives 
liability amount, each as calculated under Sec.  __.107(e). If a 
covered company's total derivatives asset amount exceeds its total 
derivatives liability amount, the covered company would have an ``NSFR 
derivatives asset amount.'' Conversely, if the total derivatives 
liability amount exceeds the total derivatives asset amount, the 
covered company would have an ``NSFR derivatives liability amount.''
    Section __.107(b)(1) of the proposed rule would assign a 100 
percent RSF factor to a covered company's NSFR derivatives asset amount 
because, as an asset class, derivative assets have a wide range of risk 
and volatility, and, therefore, a covered company should have full 
stable funding for such assets. Section __.107(c)(1) of the proposed 
rule would assign a zero percent ASF factor to a covered company's NSFR 
derivatives liability amount. Because of the variable nature of such 
liabilities, this amount would not represent stable funding.
    Question 35: What changes, if any, should be made to the proposed 
rule's mechanics for calculating a covered company's RSF and ASF 
amounts associated with its current exposures under derivative 
transactions and why? What alternative approach, if any, would be more 
appropriate? For example, should ASF and RSF factors be assigned to the 
current asset or liability values of each separate derivative 
transaction or QMNA netting set using the frameworks specified in 
Sec. Sec.  __.104 and __.106?
2. Variation Margin Provided and Received and Initial Margin Received
    As described in section II.E.1 above of this SUPPLEMENTARY 
INFORMATION section, a covered company's calculation of its current 
derivative transaction values would take into account netting due to 
variation margin received and provided by the covered company. The 
proposed rule would, in addition, require a covered company to maintain 
stable funding for assets on its balance sheet that it has received as 
variation margin and certain assets that it has provided as variation 
margin in connection with derivative transactions.
    Variation margin provided by a covered company. Sections 
__.107(b)(2) and (3) of the proposed rule would assign an RSF factor to 
variation margin provided by a covered company based on whether the 
variation margin reduces the covered company's derivatives liability 
value under the relevant derivative transaction or QMNA netting set or 
whether it is ``excess'' variation margin. If the variation margin 
reduces a covered company's derivatives liability value for a 
particular QMNA netting set or derivative transaction not subject to a 
qualifying master netting agreement, the proposed rule would assign the 
carrying value of such variation margin a zero percent RSF factor. As 
described above, such variation margin provided already reduces the 
covered company's derivatives liabilities that are able to net against 
its derivatives assets.
    To the extent a covered company provides ``excess'' variation 
margin with respect to a derivative transaction or QMNA netting set--
meaning, an amount of variation margin that does not reduce the covered 
company's derivatives liability value--and includes the excess 
variation margin asset on its balance sheet, the proposed rule would 
assign such excess variation margin an RSF factor under Sec.  __.106, 
according to the characteristics of the asset or balance sheet 
receivable associated with the asset, as applicable. Because excess 
variation margin does not reduce a covered company's derivatives 
liabilities that are able to net against its derivatives assets, the 
covered company's NSFR derivatives asset or liability amount would not 
already account for these assets. The proposed rule would therefore 
assign RSF factors to excess variation margin remaining on a covered 
company's balance sheet to reflect the required stable funding 
appropriate for the assets.
    Variation margin received by a covered company. Section 
__.107(b)(4) of the proposed rule would require all variation margin 
received by a covered company that is on the covered company's balance 
sheet to be assigned an RSF factor under Sec.  __.106, according to the 
characteristics of each asset received. Cash variation margin received, 
for example, would be assigned an RSF factor of zero percent. If that 
cash is used to purchase another asset, the new asset would be assigned 
the appropriate RSF factor under Sec.  __.106.
    The proposed rule would assign a zero percent ASF factor to any 
NSFR

[[Page 35152]]

liability that arises from an obligation to return initial margin or 
variation margin received by a covered company related to its 
derivative transactions. Given that these liabilities can change based 
on the underlying derivative transactions and remain, at most, only for 
the duration of the associated derivative transactions, they do not 
represent stable funding for a covered company. This treatment would 
apply regardless of the form of the initial margin or variation margin, 
whether securities or cash, because the liability is dependent on the 
underlying derivative transactions in either case.
    Question 36: What changes, if any, should be made to the proposed 
rule's treatment of variation margin, including the RSF factors that 
are assigned to variation margin received or provided by a covered 
company?
    Question 37: Are there alternative RSF factors that should be 
applied to variation margin received by a covered company that does not 
meet the conditions of Sec.  __.10(c)(4)(ii)(C)(1) through (7) of the 
SLR rule and is not excess variation margin and, if so, why would the 
alternative RSF factor be more appropriate?
    Question 38: Are there any liabilities associated with the 
obligation to return variation margin that should be assigned an 
alternative ASF factor and why? For example, the Basel III NSFR does 
not explicitly exclude assigning an ASF factor to obligations to return 
variation margin that meet the conditions of Sec.  
__.10(c)(4)(ii)(C)(1) through (7) of the SLR rule. Are there any 
liabilities associated with the obligations to return this variation 
margin that would have a sufficiently long maturity to be assigned an 
alternative ASF factor (i.e., six months or greater)?
3. Customer Cleared Derivative Transactions
    For a covered company that is a clearing member of a CCP, the 
covered company's NSFR derivatives asset amount or NSFR derivatives 
liability amount would not include the value of a cleared derivative 
transaction that the covered company, acting as agent, has submitted to 
the CCP on behalf of the covered company's customer, including when the 
covered company has provided a guarantee to the CCP for the performance 
of the customer. These derivative transactions are assets or 
liabilities of a covered company's customer, and the proposed rule 
would not include them as derivative assets or liabilities of the 
covered company. Similarly, because variation margin provided or 
received in connection with customer derivative transactions would not 
impact the current value of the covered company's derivative 
transactions, these amounts would also not be included in the covered 
company's calculations under Sec.  __.107.
    To the extent a covered company includes on its balance sheet under 
GAAP a derivative asset or liability value (as opposed to a receivable 
or payable in connection with a derivative transaction, as discussed 
below) associated with a customer cleared derivative transaction, the 
derivative transaction would constitute a derivative transaction of the 
covered company for purposes of Sec.  __.107 of the proposed rule. For 
example, if the covered company must perform according to a guarantee 
to the CCP of the performance of the customer such that the transaction 
becomes a derivative transaction of the covered company (e.g., 
following a default by a covered company's customer), such transaction 
would typically be included on the balance sheet of the covered company 
and would fall within the proposed rule's derivatives treatment under 
Sec.  __.107.
    To the extent a covered company has an asset or liability on its 
balance sheet associated with a customer derivative transaction that is 
not a derivative asset or liability--for example, if a covered company 
has extended credit on behalf of a customer to cover a variation margin 
payment or a covered company holds customer funds relating to 
derivative transactions in a customer protection segregated account 
discussed in section II.D.3.c of this Supplementary Information 
section--such asset or liability of the covered company would be 
assigned an RSF factor under Sec.  __.106 or an ASF factor under Sec.  
__.104, respectively. Accordingly, to the extent a covered company's 
balance sheet includes a receivable asset owed by a CCP or payable 
liability owed to a CCP in connection with customer receipts and 
payments under derivative transactions, this asset or liability would 
not constitute a derivative asset or liability of the covered company 
and would not be included in the covered company's calculations under 
Sec.  __.107 of the proposed rule.
    A covered company's NSFR derivatives asset amount or NSFR 
derivatives liability amount would include the asset or liability 
values of derivative transactions between a CCP and a covered company 
where the covered company has entered into an offsetting transaction 
(commonly known as a ``back-to-back'' transaction). Because a covered 
company would have obligations as a principal under both derivative 
transactions comprising the back-to-back transaction, any asset or 
liability values arising from these transactions, or any variation 
margin provided or received in connection with these transactions, 
would be included in the covered company's calculations under Sec.  
__.107.
    Question 39: Under what circumstances, if any, should the asset or 
liability values of a covered company's customer's cleared derivative 
transactions be included in the calculation of a covered company's NSFR 
derivatives asset amount or NSFR derivatives liability amount?
    Question 40: Other than in connection with a default by a covered 
company's customer, under what circumstances, if any, would the value 
of a cleared derivative transaction that the covered company, acting as 
agent, has submitted to a CCP on behalf of the covered company's 
customer, appear on a covered company's balance sheet? If there are 
such circumstances, should these derivative assets or liabilities be 
excluded from a covered company's calculation of its derivatives RSF 
amount under Sec.  __.107 of the proposed rule, and why?
4. Assets Contributed to a CCP's Mutualized Loss Sharing Arrangement 
and Initial Margin
    Section __.107(b)(6) of the proposed rule would assign an 85 
percent RSF factor to the fair value of assets contributed by a covered 
company to a CCP's mutualized loss sharing arrangement. Similarly, 
Sec.  __.107(b)(7) of the proposed rule would assign to the fair value 
of initial margin provided by a covered company the higher of an 85 
percent RSF factor or the RSF factor assigned to the initial margin 
asset pursuant to Sec.  __.106. The proposed rule would assign an RSF 
factor of at least 85 percent to these forms of collateral based on the 
assumption that a covered company generally must maintain its initial 
margin or CCP mutualized loss sharing arrangement contributions in 
order to maintain its derivatives activities. The proposed rule would 
not set the RSF factor at 100 percent, however, because a covered 
company, to some degree, may be able to reduce or otherwise adjust its 
derivatives activities such that they require a smaller amount of 
contributions to CCP mutualized loss sharing arrangements or initial 
margin.
    In cases where a covered company provides as initial margin an 
asset that would be assigned an RSF factor of greater than 85 percent 
if it were not provided as initial margin, the covered company would 
assign the normally

[[Page 35153]]

applicable RSF factor to the asset rather than reducing the RSF factor 
to 85 percent. For example, if a covered company provides as initial 
margin an asset that would otherwise be assigned a 100 percent RSF 
factor under Sec.  __.106 of the proposed rule, the covered company's 
act of providing the asset as initial margin would not enhance the 
asset's liquidity such that the applicable RSF factor should be reduced 
to 85 percent. Instead, the asset would continue to be assigned an RSF 
factor of 100 percent.
    The proposed rule would assign an RSF factor to the fair value of a 
covered company's contributions to a CCP's mutualized loss sharing 
arrangement or initial margin provided by a covered company regardless 
of whether the contribution or initial margin is included on the 
covered company's balance sheet. A covered company would face the same 
funding requirements and risks associated with these assets regardless 
of whether or not it includes the assets on its balance sheet. To the 
extent a covered company includes on its balance sheet a receivable for 
an asset contributed to a CCP's mutualized loss sharing arrangement or 
provided as initial margin, rather than the asset itself, the proposed 
rule would assign an RSF factor to the fair value of the asset, 
ignoring the receivable, in order to avoid double counting.
    The proposed rule would not assign an RSF factor under Sec.  __.107 
of the proposed rule to initial margin provided by a covered company 
acting as an agent for a customer's cleared derivative transactions 
where the covered company does not provide a guarantee to the customer 
with respect to the return of the initial margin to the customer. A 
covered company would not include this form of initial margin in its 
derivatives RSF amount because the customer is obligated to fund the 
initial margin under the customer transaction for the duration of the 
transaction, so the covered company faces limited liquidity risk. To 
the extent a covered company includes on its balance sheet any such 
initial margin, this initial margin would instead be assigned an RSF 
factor pursuant to Sec.  __.106 of the proposed rule and any 
corresponding liability would be assigned an ASF factor pursuant to 
Sec.  __.104.
    Question 41: What other RSF factor, if any, would be more 
appropriate for initial margin and assets contributed to a mutualized 
loss sharing arrangement? For example, would it be more appropriate to 
apply a 100 percent RSF factor, based on an assumption that a covered 
company would generally maintain its derivatives activities at current 
levels, such that the covered company should be required to fully 
support these obligations with stable funding?
    Question 42: Should assets contributed by a covered company to a 
CCP's mutualized loss sharing arrangement be treated differently than 
initial margin provided by a covered company? If so, how should these 
assets be treated and why?
5. Derivatives Portfolio Potential Valuation Changes
    As the value of a company's derivative transactions decline, the 
company may be required to provide variation margin or make settlement 
payments to its counterparty. The proposed rule would therefore require 
a covered company to maintain available stable funding to support these 
potential variation margin and settlement payment outflows. 
Specifically, a covered company's derivatives RSF amount would include 
an additional component that is intended to address liquidity risk 
associated with potential changes in the value of the covered company's 
derivative transactions.
    Under Sec.  __.107(b)(5) of the proposed rule, this additional 
component would equal 20 percent of the sum of a covered company's 
``gross derivative values'' that are liabilities under each of its 
derivative transactions not subject to a qualifying master netting 
agreement and each of its QMNA netting sets, multiplied by an RSF 
factor of 100 percent.\86\ For purposes of this calculation, the 
``gross derivative value'' of a derivative transaction not subject to a 
qualifying master netting agreement or of a QMNA netting set would 
equal the value to the covered company, calculated as if no variation 
margin had been exchanged and no settlement payments had been made 
based on changes in the values of the derivative transaction or QMNA 
netting set.\87\ A covered company would not include in the sum any 
gross derivative values that are assets.
---------------------------------------------------------------------------

    \86\ As discussed in section II.E.3 of this Supplementary 
Information section, for a covered company that is a clearing member 
of a CCP, the company's calculation of its RSF measure for potential 
derivatives future valuation changes would generally not include 
gross derivative values of the covered company's customers' cleared 
derivative transactions where the covered company acts as agent for 
the customers. As with other components of a covered company's 
derivatives RSF amount calculation, however, the RSF measure for 
potential future valuation changes would include such derivative 
transactions that the covered company includes on its balance sheet 
under GAAP.
    \87\ Other payments made under a derivative transaction, such as 
periodic fixed-for-floating payments under an interest rate swap, 
would not be considered settlement payments based on changes in the 
value of a derivative transaction for purposes of this calculation.
---------------------------------------------------------------------------

    For example, if a covered company has a derivative transaction not 
subject to a qualifying master netting agreement whose value on day 1 
is $0, and the value moves to -$10 on day 2 and the covered company 
provides $10 of variation margin, the covered company's gross 
derivative value on day 2 (if day 2 is an NSFR calculation date) 
attributable to the derivative transaction for purposes of this 
calculation would be a liability of $10. If the value subsequently 
moves to -$8 on day 3 and the covered company receives $2 of variation 
margin returned (resulting in a net of $8 of variation margin provided 
by the covered company), the covered company's gross derivative value 
on day 3 (if day 3 is an NSFR calculation date) attributable to the 
derivative transaction for purposes of this calculation would be a 
liability of $8. The gross derivative values on day 2 and day 3 for 
purposes of this calculation would be the same if the covered company 
had provided a net of $10 and $8 in settlement payments, respectively, 
over the life of the same derivative transaction instead of $10 and $8 
of variation margin.
    In considering the appropriate measure to account for these risks 
in the NSFR calculation, the agencies reviewed public and supervisory 
information on the volatility of derivatives assets and liabilities and 
the associated value of collateral received and provided, including the 
fair value of derivatives assets and liabilities as reported on GAAP 
financial statements, the fair value of derivatives assets and 
liabilities excluding collateral received or provided, the proportion 
of collateralized and uncollateralized derivatives assets and 
liabilities, and the fair value of collateral provided and received. 
Over the periods reviewed, collateral inflows and outflows associated 
with derivative valuation changes--and consequent liquidity risks--
exhibited material volatility. The proposed 20 percent factor falls 
within the range of observed volatility when measured relative to 
derivatives liabilities excluding collateral received or provided.
    The proposed rule would treat variation margin and settlement 
payments based on changes in the value of a derivative transaction 
similarly because both variation margin and these settlement payments 
are intended to reduce a party's current exposure under a derivative 
transaction or QMNA

[[Page 35154]]

netting set. This RSF measure for potential valuation changes would 
account for the different liquidity risks faced by a covered company 
that has little or no derivatives activity versus the liquidity risks 
of a covered company that has a significant amount of derivative 
transactions, but that has to date covered all changes in the value of 
derivative transactions with variation margin or settlement payments.
    Question 43: The agencies are considering alternative methodologies 
for capturing the potential volatility of a covered company's 
derivatives portfolio, and associated funding needs, within the NSFR 
framework. One alternative to the proposed treatment would be to 
require an RSF amount based on a covered company's historical 
experience. Under such an alternative, a factor could be based on the 
historical changes in a covered company's aggregate derivatives 
position, such as the largest, 99th, or 95th percentile annual change 
in the value of a covered company's derivative transactions over the 
prior two or five years. Another alternative could be to require an RSF 
amount based on modeled estimates of potential future exposure. 
Commenters are encouraged to provide feedback on methodologies, both 
those discussed and other potential alternatives, that best capture the 
funding risk associated with potential valuation changes in a covered 
company's derivatives portfolio, are conceptually sound, and are 
supported by data.
    Question 44: What operational challenges, if any, arise from the 
proposed measurement of gross derivatives liabilities?
    Question 45: Is it appropriate to treat variation margin payments 
and settlement payments identically for purposes of the RSF measure for 
derivative portfolio potential future valuation changes? Should the 
agencies distinguish between variation margin payments that are treated 
as collateral and payments that settle an outstanding derivatives 
liability, and if so, why? If it is appropriate to distinguish between 
these types of payments, what legal, accounting, or other criteria 
should be used to distinguish between them?
6. Derivatives RSF Amount
    Under the proposed rule, a covered company would sum the required 
stable funding amounts calculated under Sec.  __.107 to determine the 
company's derivatives RSF amount. As described in section II.D.1 of 
this Supplementary Information section, a covered company would add its 
derivatives RSF amount to its other required stable funding amounts 
calculated under Sec.  __.105(a) of the proposed rule to determine its 
overall RSF amount, which would be the denominator of its NSFR.
    A covered company's derivatives RSF amount would include the 
following components under Sec.  __.107(b) of the proposed rule:
    (1) The required stable funding amount for the current value of a 
covered company's derivatives assets and liabilities, which, as 
described in section II.E.1 of this Supplementary Information section, 
is equal to the covered company's NSFR derivatives asset amount, 
multiplied by an RSF factor of 100 percent;
    (2) The required stable funding amount for non-excess variation 
margin provided by the covered company, which, as described in section 
II.E.2 of this Supplementary Information section, equals the carrying 
value of variation margin provided by the covered company under each of 
its derivative transactions not subject to a qualifying master netting 
agreement and each of its QMNA netting sets that reduces the covered 
company's derivatives liability value of the relevant derivative 
transaction or QMNA netting set, multiplied by an RSF factor of zero 
percent;
    (3) The required stable funding amount for excess variation margin 
provided by the covered company, which, as described in section II.E.2 
of this Supplementary Information section, equals the sum of the 
carrying values of each excess variation margin asset provided by the 
covered company, multiplied by the RSF factor assigned to the asset 
pursuant to Sec.  __.106;
    (4) The required stable funding amount for variation margin 
received by the covered company, which, as described in section II.E.2 
of this Supplementary Information section, equals the sum carrying 
values of each variation margin asset received by the covered company, 
multiplied by the RSF factor assigned to the asset pursuant to Sec.  
__.106;
    (5) The required stable funding amount for potential future 
valuation changes of the covered company's derivatives portfolio, 
which, as described in section II.E.5 of this Supplementary Information 
section, equals 20 percent of the sum of the covered company's gross 
derivatives liabilities, when calculated as if no variation margin had 
been exchanged and no settlement payments had been made based on 
changes in the values of the derivative transactions, multiplied by an 
RSF factor of 100 percent;
    (6) The required stable funding amount for the covered company's 
contributions to CCP mutualized loss sharing arrangements, which, as 
described in section II.E.4 of this Supplementary Information section, 
equals the sum of the fair values of the covered company's 
contributions to CCPs' mutualized loss sharing arrangements (regardless 
of whether a contribution is included on the covered company's balance 
sheet), multiplied by an RSF factor of 85 percent; and
    (7) The required stable funding amount for initial margin provided 
by the covered company, which, as described in section II.E.4 of this 
Supplementary Information section, equals the sum of fair values of 
each initial margin asset provided by the covered company for 
derivative transactions (regardless of whether it is included on the 
covered company's balance sheet), multiplied by the higher of an RSF 
factor of 85 percent and the RSF factor assigned to the initial margin 
asset pursuant to Sec.  __.106. As noted above, the covered company 
would not include as part of its derivatives RSF amount under Sec.  
__.107 initial margin provided for a derivative transaction under which 
the covered company acts as agent for a customer and does not guarantee 
the obligations of the customer's counterparty, such as a CCP, to the 
customer under the derivative transaction. (Such initial margin would 
instead be assigned an RSF factor pursuant to Sec.  __.106 of the 
proposed rule, as described in section II.E.4 of this Supplementary 
Information section.)
    Question 46: The agencies invite comment regarding the proposed 
rule's approach for determining RSF and ASF amounts with respect to 
derivative transactions. What alternative approach, if any, would be 
more appropriate?
7. Derivatives RSF Amount Numerical Example
    The following is a numerical example illustrating the calculation 
of a covered company's derivatives RSF amount under the proposed rule. 
Table 2 sets forth the facts of the example, which assumes that: (1) A 
qualifying master netting agreement exists between each of the 
counterparties and each of the transactions thereunder are part of a 
single QMNA netting set, (2) any variation margin received is in the 
form of cash and meets the conditions of Sec.  __.10(c)(4)(ii)(C)(1) 
through (7) of the SLR rule,\88\ (3) no variation margin provided by 
the covered company remains on the covered company's balance sheet, (4) 
the covered company

[[Page 35155]]

has provided U.S. Treasuries as initial margin to its counterparties, 
and (5) the derivative transactions are not cleared through a CCP 
(i.e., the covered company has not contributed any assets to a CCP's 
mutualized loss sharing arrangement).
---------------------------------------------------------------------------

    \88\ 12 CFR 3.10(c)(4)(ii)(C)(1)-(7) (OCC), 12 CFR 
217.10(c)(4)(ii)(C)(1)-(7) (Board), and 12 CFR 
324.10(c)(4)(ii)(C)(1)-(7) (FDIC).

                         Table 2--Derivative Transactions Numerical Example Fact Pattern
----------------------------------------------------------------------------------------------------------------
                                                         Asset (liability)
                                                            value for the    Variation margin    Initial margin
                                                          covered company,       provided       provided by the
                                                          prior to netting  (received) by the   covered company
                                                          variation margin   covered company
----------------------------------------------------------------------------------------------------------------
Counterparty A:
    Derivative 1A......................................                 10                (2)                  2
    Derivative 2A......................................                (2)
Counterparty B:
    Derivative 1B......................................               (10)                  3                  1
    Derivative 2B......................................                  5
Counterparty C:
    Derivative 1C......................................                (2)                  0                  0
----------------------------------------------------------------------------------------------------------------

    Calculation of derivatives assets and liabilities.
    (1) The derivatives asset value for counterparty A = (10-2)-2 = 6.
    (2) The derivatives liability value for counterparty B = (10-5)-3 = 
2.
    The derivatives liability value for counterparty C = 2.
    Calculation of total derivatives asset and liability amounts.
    (1) The covered company's total derivatives asset amount = 6.
    (2) The covered company's total derivatives liability amount = 2 + 
2 = 4.
    Calculation of NSFR derivatives asset or liability amount.
    (1) The covered company's NSFR derivatives asset amount = max (0, 
6-4) = 2.
    (2) The covered company's NSFR derivatives liability amount = max 
(0, 4-6) = 0.
    Required stable funding relating to derivative transactions.
    The covered company's derivatives RSF amount is equal to the sum of 
the following:
    (1) NSFR derivatives asset amount x 100% = 2 x 1.0 = 2;
    (2) Non-excess variation margin provided x 0% = 3 x 0.0 = 0;
    (3) Excess variation provided x applicable RSF factor(s) = 0;
    (4) Variation margin received x applicable RSF factor(s) = 2 x 0.0 
= 0;
    (5) Gross derivatives liabilities x 20% x 100% = (5 + 2) x 0.2 x 
1.0 = 1.4;
    (6) Contributions to CCP mutualized loss-sharing arrangements x 85% 
= 0 x 0.85 = 0; and
    (7) Initial margin provided x higher of 85% or applicable RSF 
factor(s) = (2 + 1) x max (0.85, 0.05) = 2.55.
    The covered company's derivatives RSF amount = 2 + 0 + 0 + 0 + 1.4 
+ 0 + 2.55 = 5.95.

F. NSFR Consolidation Limitations

    In general, the proposed rule would require a covered company to 
calculate its NSFR on a consolidated basis. When calculating ASF 
amounts from a consolidated subsidiary, however, the proposed rule 
would require a covered company to take into account restrictions on 
the availability of stable funding of the consolidated subsidiary to 
support assets, derivative exposures, and commitments of the covered 
company held at entities other than the subsidiary. Specifically, to 
the extent a covered company has an ASF amount associated with a 
consolidated subsidiary that exceeds the RSF amount associated with the 
subsidiary (each as calculated by the covered company for purposes of 
the covered company's NSFR),\89\ the proposed rule would permit the 
covered company to include such ``excess'' ASF amounts in its 
consolidated ASF amount only to the extent the consolidated subsidiary 
may transfer assets to the top-tier entity of the covered company, 
taking into account statutory, regulatory, contractual, or supervisory 
restrictions.
---------------------------------------------------------------------------

    \89\ ASF amounts associated with a consolidated subsidiary, in 
this context, refer to those amounts that would be calculated from 
the perspective of the covered company (e.g., in calculating the ASF 
amount of a consolidated subsidiary that can be included in the 
covered company's consolidated ASF amount, the covered company would 
not include certain transactions between consolidated subsidiaries 
that are netted under GAAP). For this reason, an ASF amount of a 
consolidated subsidiary that is included in a covered company's 
consolidated NSFR calculation may not be equal to the ASF amount of 
the consolidated subsidiary when calculated on a standalone basis if 
the consolidated subsidiary is itself a covered company.
---------------------------------------------------------------------------

    For example, if a covered company calculates a required stable 
funding amount of $90 based on the assets, derivative exposures, and 
commitments of a consolidated subsidiary and an available stable 
funding amount of $100 based on the NSFR regulatory capital elements 
and NSFR liabilities of the consolidated subsidiary, the consolidated 
subsidiary would have an ``excess'' ASF amount of $10 for purposes of 
this consolidation restriction. The covered company may only include 
any of this $10 excess available stable funding in its consolidated ASF 
amount to the extent the consolidated subsidiary may transfer assets to 
the top-tier entity of the covered company (for example, through a loan 
from the subsidiary to the top-tier covered company), taking into 
account statutory, regulatory, contractual, or supervisory 
restrictions. Examples of restrictions on transfers of assets that a 
covered company would be required to take into account in calculating 
its NSFR include sections 23A and 23B of the Federal Reserve Act (12 
U.S.C. 371c and 12 U.S.C. 371c-1); the Board's Regulation W (12 CFR 
part 223); any restrictions imposed on a consolidated subsidiary by 
state or Federal law, such as restrictions imposed by a state banking 
or insurance supervisor; and any restrictions imposed on a consolidated 
subsidiary or branches of a U.S. entity domiciled outside the United 
States by a foreign regulatory authority, such as a foreign banking 
supervisor. This limitation on the ASF amount of a consolidated 
subsidiary includable in a covered company's NSFR would apply to both 
U.S. and non-U.S. consolidated subsidiaries.
    The proposed rule would permit a covered company's ASF amount to 
include any portion of the ASF amount of a consolidated subsidiary that 
is less than or equal to the subsidiary's RSF amount because the 
subsidiary's NSFR liabilities and NSFR regulatory capital elements 
generating that ASF amount are available to stably fund the 
subsidiary's assets. The proposed rule

[[Page 35156]]

would limit inclusion of excess ASF amounts, however, because the 
proceeds of stable funding at one entity of the covered company may not 
always be available to support liquidity needs at another entity. Even 
though it may be consistent with sound risk management practices for a 
subsidiary to maintain an excess ASF amount, the proposed rule would 
not permit the excess ASF amount to count towards the covered company's 
consolidated NSFR if the subsidiary is unable to transfer assets to its 
parent. This approach to calculating a covered company's consolidated 
ASF amount would be similar to the approach taken in the LCR rule to 
calculate a covered company's HQLA amount.
    The proposed rule would require a covered company that includes a 
consolidated subsidiary's excess ASF amount in its consolidated NSFR to 
implement and maintain written procedures to identify and monitor 
restrictions on transferring assets from its consolidated subsidiaries. 
In this case, the covered company would be required to document the 
types of transactions, such as loans or dividends, a covered company's 
consolidated subsidiary could use to transfer assets and how the 
transactions comply with applicable restrictions. The covered company 
should be able to demonstrate to the satisfaction of its appropriate 
Federal banking agency that such excess amounts may be transferred 
freely in compliance with statutory, regulatory, contractual, or 
supervisory restrictions that may apply in any relevant jurisdiction. A 
covered company that does not include any excess ASF amount from its 
consolidated subsidiaries in its NSFR would not be required to have 
such procedures in place.
    Question 47: What alternative approaches, if any, should the 
agencies consider regarding the treatment of the excess ASF amount of a 
consolidated subsidiary of a covered company to appropriately reflect 
constraints on the ability of stable funding at one entity to support 
the assets of a different entity? Does the proposed rule's approach 
sufficiently reflect restrictions on transfers of assets between 
entities of a covered company, given that these constraints may vary, 
and why? For example, would the proposed rule's approach adequately 
address a situation in which, during an idiosyncratic or systemic 
liquidity stress event, one or more entities of a covered company 
becomes subject to more stringent restrictions on transferring assets 
than they might face during normal times, and why?
    Question 48: What operational burdens would covered companies face 
from the proposed approach with respect to excess ASF amounts of 
consolidated subsidiaries?
    Question 49: Should this approach regarding the treatment of the 
excess ASF amount of a consolidated subsidiary be limited to a certain 
set of covered companies, such as GSIBs? If so, please provide 
reasoning as to why the proposed consolidation provisions would be more 
appropriate for these covered companies as opposed to others.

G. Interdependent Assets and Liabilities

    The Basel III NSFR provides that, in limited circumstances, it may 
be appropriate for an interdependent asset and liability to be assigned 
a zero percent RSF factor and a zero percent ASF factor, respectively, 
if they meet strict conditions. Currently, it does not appear that U.S. 
banking organizations engage in transactions that would meet these 
conditions in the Basel III NSFR. The proposed rule therefore does not 
include a framework for interdependent assets and liabilities.
    In order for an asset and liability to be considered 
interdependent, the Basel III NSFR would require the following 
conditions to be met: (1) The interdependence of the asset and 
liability must be established on the basis of contractual arrangements, 
(2) the liability cannot fall due while the asset remains on the 
balance sheet, (3) the principal payment flows from the asset cannot be 
used for purposes other than repaying the liability, (4) the liability 
cannot be used to fund other assets, (5) the individual interdependent 
asset and liability must be clearly identifiable, (6) the maturity and 
principal amount of both the interdependent liability and asset must be 
the same, (7) the bank must be acting solely as a pass-through unit to 
channel the funding received from the liability into the corresponding 
interdependent asset, and (8) the counterparties for each pair of 
interdependent liabilities and assets must not be the same.\90\
---------------------------------------------------------------------------

    \90\ Basel III NSFR, supra note 4 at para 45.
---------------------------------------------------------------------------

    The Basel III NSFR conditions for establishing interdependence are 
intended to ensure that the specific liability will, under all 
circumstances, remain for the life of the asset and all cash flows 
during the life of the asset and at maturity are perfectly matched with 
cash flows of the liability. Under such conditions, a covered company 
would face no funding risk or benefit arising from the interdependent 
asset or liability. For example, if a sovereign entity establishes a 
program where it provides funding through financial institutions that 
act as pass-through entities to make loans to third parties, and all 
the conditions set forth in the Basel III NSFR are met, the liquidity 
profile of a financial institution would not be affected by its 
participation in the program. As such, the assets of the financial 
institution created through such a program could be considered 
interdependent with the liabilities that would also be created through 
the program, and the assets and liabilities could be assigned a zero 
percent RSF factor and a zero percent ASF factor, respectively. 
Currently, no such programs exist in the United States.
    Other transactional structures of covered companies reviewed by the 
agencies do not appear to meet the Basel III NSFR conditions for 
interdependent asset and liability treatment and present liquidity 
risks such that zero percent RSF and ASF factors would not be 
warranted. For example, a covered company may have a short position 
under an equity total return swap (TRS) with a customer that the 
covered company has hedged with a long position in the equity 
securities underlying the TRS. This set of transactions would not 
appear to meet the Basel III NSFR conditions for interdependent 
treatment on several bases, including: the liability funding the equity 
position could fall due while the equity position remains on the 
covered company's balance sheet; the maturity of the equity position 
and the liability funding the equity position would not be the same 
(the equity is perpetual and the liability could have a short-term 
maturity); and the covered company would not be acting solely as a 
pass-through unit to channel the funding received from the repurchase 
agreement.
    As another example, a covered company might enter into a securities 
borrowing transaction to facilitate a customer short sale of 
securities. This set of transactions would also not appear to meet the 
Basel III NSFR conditions for interdependent treatment on several 
bases, including: The interdependence of the asset and liability may 
not be established on the basis of contractual arrangements; the 
liability could fall due while the asset remained on the balance sheet; 
and the maturity and principal amount of both the interdependent 
liability and asset may not be the same.
    For the reasons described above, the proposed rule would not 
include a framework for interdependent assets and liabilities.

[[Page 35157]]

    Question 50: What assets and liabilities of covered companies, if 
any, meet the conditions for the interdependent treatment described by 
the Basel III NSFR and merit zero percent RSF and ASF factors?

III. Net Stable Funding Ratio Shortfall

    As noted above, the proposed rule would require a covered company 
to maintain an NSFR of at least 1.0 on an ongoing basis. The agencies 
expect circumstances where a covered company has an NSFR below 1.0 to 
arise only rarely. However, given the range of reasons, both 
idiosyncratic and systemic, a covered company could have an NSFR below 
1.0 (for example, a covered company's NSFR might temporarily fall below 
1.0 during a period of extreme liquidity stress), the proposed rule 
would not prescribe a particular supervisory response to address a 
violation of the NSFR requirement. Instead, the proposed rule would 
provide flexibility for the appropriate Federal banking agency to 
respond based on the circumstances of a particular case. Potential 
supervisory responses could include, for example, an informal 
supervisory action, a cease-and-desist order, or a civil money penalty.
    The proposed rule would require a covered company to notify its 
appropriate Federal banking agency of an NSFR shortfall or potential 
shortfall. Specifically, a covered company would be required to notify 
its appropriate Federal banking agency no later than 10 business days, 
or such other period as the appropriate Federal banking agency may 
otherwise require by written notice, following the date that any event 
has occurred that has caused or would cause the covered company's NSFR 
to fall below the minimum requirement.
    In addition, a covered company would be required to develop a plan 
for remediation in the event of an NSFR shortfall. The proposed rule 
would require a covered company to submit its remediation plan to its 
appropriate Federal banking agency no later than 10 business days, or 
such other period as the appropriate Federal banking agency may 
otherwise require by written notice, after: (1) The covered company's 
NSFR falls below, or is likely to fall below, the minimum requirement 
and the covered company has or should have notified the appropriate 
Federal banking agency, as required under the proposed rule; (2) the 
covered company's required NSFR disclosures or other regulatory reports 
or disclosures indicate that its NSFR is below the minimum requirement; 
or (3) the appropriate Federal banking agency notifies the covered 
company that it must submit a plan for NSFR remediation and the agency 
provides a reason for requiring such a plan. As set forth in Sec.  
__.110(b)(2), such a plan would be required to include an assessment of 
the covered company's liquidity profile, the actions the covered 
company has taken and will take to achieve full compliance with the 
proposed rule (including a plan for adjusting the covered company's 
liquidity profile to comply with the proposed rule's NSFR requirement 
and a plan for fixing any operational or management issues that may 
have contributed to the covered company's noncompliance), and an 
estimated time frame for achieving compliance.
    Moreover, the covered company would be required to report to the 
appropriate Federal banking agency no less than monthly (or other 
frequency, as required by the agency) on its progress towards achieving 
full compliance with the proposed rule. These reports would be 
mandatory until the firm's NSFR is equal to or greater than 1.0.
    Supervisors would retain the authority to take supervisory action 
against a covered company that fails to comply with the NSFR 
requirement.\91\ Any action taken would depend on the circumstances 
surrounding the funding shortfall, including, but not limited to 
operational issues at a covered company, the frequency or magnitude of 
the noncompliance, the nature of the event that caused a shortfall, and 
whether such an event was temporary or unusual.
---------------------------------------------------------------------------

    \91\ See also the discussion of the agencies' reservation of 
authority in section I.C.2 of the Supplementary Information section.
---------------------------------------------------------------------------

    The proposed rule's framework would be similar to the shortfall 
framework in the LCR rule, which does not prescribe a particular 
supervisory response to address an LCR shortfall, and provides 
flexibility for the appropriate Federal banking agency to respond based 
on the circumstances of a particular case.
    Question 51: Is the proposed NSFR shortfall supervisory procedure 
appropriate to address instances when a covered company is out of 
compliance with the proposed NSFR requirement? Why or why not? If not, 
please provide justifications supporting that view as well as 
procedures that may be more appropriate.
    Question 52: The agencies invite comment on all aspects of the 
proposed NSFR shortfall supervisory procedures. Should a de minimis 
exception to an NSFR shortfall be implemented, such that a covered 
company would not need to report such a shortfall, provided its NSFR 
returns to the required minimum within a short grace period? If so, 
what de minimis amount would be appropriate and why? What duration of 
grace period would be appropriate and why?
    Question 53: What amount of time would be most appropriate for a 
covered company that is noncompliant with the NSFR requirement to 
prepare a plan for working towards compliance? The proposed rule 
provides 10 business days (or such other period as the appropriate 
Federal banking agency may require), but would a longer period, such as 
20 business days, be more appropriate and, if so, why?

IV. Modified Net Stable Funding Ratio Applicable to Certain Covered 
Depository Institution Holding Companies

A. Overview and Applicability

    The Board is proposing a modified NSFR requirement that would be 
tailored for modified NSFR holding companies and would be less 
stringent than the proposed NSFR requirement that would apply to 
covered companies. A modified NSFR holding company would be required to 
maintain a lower minimum amount of stable funding, equivalent to 70 
percent of the amount that would be required for a covered company. As 
discussed in section I.A of this Supplementary Information section, a 
modified NSFR holding company would be a bank holding company or 
savings and loan holding company without significant insurance or 
commercial operations that, in either case, has $50 billion or more, 
but less than $250 billion, in total consolidated assets and less than 
$10 billion in total on-balance sheet foreign exposure.\92\
---------------------------------------------------------------------------

    \92\ The proposed modified NSFR requirement would not apply to: 
(i) A grandfathered unitary savings and loan holding company (as 
described in section 10(c)(9)(A) of the Home Owners' Loan Act, 12 
U.S.C. 1467a(c)(9)(A)) that derives 50 percent or more of its total 
consolidated assets or 50 percent of its total revenues on an 
enterprise-wide basis from activities that are not financial in 
nature under section 4(k) of the Bank Holding Company Act (12 U.S.C. 
1843(k)); (ii) a top-tier bank holding company or savings and loan 
holding company that is an insurance underwriting company; or (iii) 
a top-tier bank holding company or savings and loan holding company 
that has 25 percent or more of its total consolidated assets in 
subsidiaries that are insurance underwriting companies. For purposes 
of (iii), the company must calculate its total consolidated assets 
in accordance with GAAP or estimate its total consolidated assets, 
subject to review and adjustment by the Board.
---------------------------------------------------------------------------

    Modified NSFR holding companies are large financial companies, and 
many have sizable operations in banking, brokerage, or other financial 
activities. Compared to covered companies, however, they are smaller in 
size and

[[Page 35158]]

generally less complex in structure, less interconnected with other 
financial companies, and less reliant on riskier forms of funding. 
Their activities tend to be more limited in scope and they tend to have 
fewer international activities. Modified NSFR holding companies also 
tend to have simpler balance sheets, which, in the event of disruptions 
to a company's regular sources of funding, better enables the company's 
management and its supervisors to identify risks and take corrective 
actions more quickly, as compared to covered companies. For many of 
these same reasons, modified NSFR holding companies also would likely 
not present as great a risk to U.S. financial stability as covered 
companies.
    Nevertheless, modified NSFR holding companies do face more complex 
liquidity risk management challenges than smaller banking organizations 
and are important providers of credit in the U.S. economy. The failure 
or distress of one or more modified NSFR holding companies could still 
pose risks to U.S. financial stability, though to a lesser degree than 
the failure or distress of one or more covered companies. Therefore, 
the Board is proposing a minimum stable funding requirement for 
modified NSFR holding companies that would not be as stringent as the 
proposed NSFR requirement that would apply to covered companies.
    A modified NSFR holding company that becomes subject to the 
proposed rule pursuant to Sec.  249.1(b)(v) after the effective date 
would be required to comply with the proposed modified NSFR requirement 
one year after the date it meets the applicable thresholds. This one-
year transition period would provide newly subject modified NSFR 
holding companies sufficient time to adjust to the requirements of the 
proposal.
    Other than the lower RSF amount requirement and longer transition 
period, the proposed modified NSFR requirement would be identical to 
the proposed NSFR requirement for covered companies. Modified NSFR 
holding companies would also be subject to the public disclosure 
requirements under Sec. Sec.  __.130 and __.131 of the proposed rule, 
described in section V of this Supplementary Information section.

B. Available Stable Funding

    A modified NSFR holding company would calculate its ASF amount in 
the same manner as a covered company, pursuant to Sec.  __.103 of the 
proposed rule. The ASF amount would comprise the equity and liabilities 
held by a modified NSFR holding company multiplied by the same 
standardized ASF factors as those that would be used by a covered 
company to determine the expected stability of its funding over a one-
year time horizon. These ASF factors would be applicable to modified 
NSFR holding companies because they represent the proportionate amount 
of NSFR equity and liabilities that can be considered stable funding 
available to support assets, derivative exposures, and commitments.

C. Required Stable Funding

    A modified NSFR holding company would calculate its RSF amount in 
the same manner as a covered company, pursuant to Sec.  __.105 of the 
proposed rule, except that a modified NSFR holding company would 
multiply its RSF amount by 70 percent. As discussed above, the modified 
NSFR requirement would not require these firms to maintain as high an 
amount of stable funding as covered companies, based on the different 
risks of these firms.
    Question 54: What, if any, modifications to the modified NSFR 
requirement should the Board consider? Is the proposed 70 percent of 
the RSF amount appropriate for the modified NSFR holding companies 
based on their relative complexity and size? Please provide 
justification and supporting data.
    Question 55: What operational burdens would modified NSFR holding 
companies face in complying with the proposed modified NSFR 
requirement?
    Question 56: Should the rules for consolidation under Sec.  __.108 
of the proposed rule be limited to covered companies, rather than 
applying to both covered companies and modified NSFR holding companies, 
and, if so, why?

V. Disclosure Requirements

A. Proposed NSFR Disclosure Requirements

    The disclosure requirements of the proposed rule would apply to 
covered companies that are bank holding companies and savings and loan 
holding companies and to modified NSFR holding companies. The 
disclosure requirements of the proposed rule would not apply to 
depository institutions that are subject to the proposed rule.\93\
---------------------------------------------------------------------------

    \93\ In the future, the agencies may develop a different or 
modified reporting form that would be required for both depository 
institutions and depository institution holding companies subject to 
the proposed rule. The agencies anticipate that they would solicit 
public comment on any such new reporting form.
---------------------------------------------------------------------------

    The proposed rule would require public disclosures of a company's 
NSFR and the components of its NSFR in a standardized tabular format 
(NSFR disclosure template). The proposed rule would also require 
sufficient discussion of certain qualitative features of a company's 
NSFR and its components to facilitate an understanding of the company's 
calculation and results. The NSFR disclosure template is similar to the 
common disclosure template published by the BCBS as part of the Basel 
III Disclosure Standards (BCBS common template). The proposed rule 
would require a company to provide timely public disclosures each 
calendar quarter of the information in the NSFR disclosure template and 
the qualitative disclosures in a direct and prominent manner on its 
public internet site or in a public financial report or other public 
regulatory report. Such disclosures would need to remain publicly 
available for at least five years after the date of the disclosure.
    In order to reduce compliance costs and provide relevant 
information to the public about the funding profile of a company, the 
proposed rule's quantitative disclosures would reflect data that a 
company would be required to calculate in order to comply with the 
proposed rule.
    Question 57: The agencies invite comment on all aspects of the 
disclosure requirements of the proposed rule. Specifically, what 
changes, if any, could improve the clarity and utility of the 
disclosures?

B. Quantitative Disclosure Requirements

    The proposed rule would require a company subject to the proposed 
disclosure requirements to publicly disclose the company's NSFR and its 
components. By using a standardized tabular format that is similar to 
the BCBS common template, the NSFR disclosure template would enable 
market participants to compare funding characteristics of covered 
companies in the United States and other banking organizations subject 
to similar stable funding requirements in other jurisdictions. However, 
the disclosure requirements of the proposed rule and the accompanying 
NSFR disclosure template also reflect differences between the proposed 
rule and the Basel III NSFR, as discussed below.
    The NSFR disclosure template would include components of a 
company's ASF and RSF calculations (ASF components and RSF components, 
respectively), as well as the company's ASF amount, RSF amount, and 
NSFR. For most ASF and RSF components, the proposed rule would require 
disclosure of both ``unweighted'' and ``weighted'' amounts. The 
``unweighted'' amount

[[Page 35159]]

generally refers to values of ASF or RSF components prior to applying 
the ASF or RSF factors assigned under Sec. Sec.  __.104, __.106, or 
__.107, as applicable, whereas the ``weighted'' amount generally refers 
to the amounts resulting after applying the ASF or RSF factors. For 
certain line items in the proposed NSFR disclosure template relating to 
derivative transactions that include components of multi-step 
calculations before an ASF or RSF factor is applied, as described in 
section II.E of this Supplementary Information section, a company would 
only be required to disclose a single amount for the component.
    For most ASF or RSF components, the proposed NSFR disclosure 
template would require the unweighted amount to be separated based on 
maturity categories relevant to the NSFR requirement: Open maturity; 
less than six months after the calculation date; six months or more, 
but less than one year after the calculation date; one year or more 
after the calculation date; and perpetual. For purposes of 
comparability of disclosures across jurisdictions, while the BCBS 
common template does not distinguish between the ``open'' and 
``perpetual'' maturity categories (grouping them together under the 
heading ``no maturity''), the proposed rule would require a company to 
disclose amounts in those two maturity categories separately because 
the categories are on opposite ends of the maturity spectrum for 
purposes of the proposed rule. As noted in section II.B of this 
Supplementary Information section, the ``open'' maturity category is 
meant to capture instruments that do not have a stated contractual 
maturity and may be closed out on demand, such as demand deposits. The 
``perpetual'' category is intended to capture instruments that 
contractually never mature and may not be closed out on demand, such as 
equity securities. Separating these two categories into two disclosure 
columns improves the transparency and quality of the disclosure without 
undermining the ability to compare the NSFR component disclosures of 
banking organizations in other jurisdictions that utilize the BCBS 
common template, because these two columns can be summed for comparison 
purposes. For certain ASF and RSF components that represent 
calculations that do not depend on maturities, such as the NSFR 
derivatives asset or liability amount, the proposed NSFR disclosure 
template would not require a company to separate its disclosed amount 
by maturity category.
    As described further below, the proposed rule identifies the ASF 
and RSF components that a company must include in each row of the 
proposed NSFR disclosure template, including cross-references to the 
relevant sections of the proposed rule. The numbered rows of the 
proposed NSFR disclosure template do not always map on a one-to-one 
basis with provisions of the proposed rule relating to the calculation 
of a company's NSFR. In some cases, the proposed NSFR disclosure 
template requires instruments that are assigned identical ASF or RSF 
factors to be disclosed in different rows or columns, and some rows and 
columns combine disclosure of instruments that are assigned different 
ASF or RSF factors. For example, the proposed NSFR disclosure template 
includes all level 1 liquid assets in a single row, even though the 
proposed rule would assign a zero percent, 5 percent, or higher RSF 
factor to various level 1 liquid assets under Sec.  __.106(a)(1) (such 
as Reserve Bank balances), Sec.  __.106(a)(2) (such as unencumbered 
U.S. Treasury securities), or Sec.  ___. 106(c) (if the level 1 liquid 
asset is encumbered), respectively.\94\
---------------------------------------------------------------------------

    \94\ See discussion in sections II.D.3.a.i, II.D.3.a.ii, and 
II.D.3.c of this SUPPLEMENTARY INFORMATION section.
---------------------------------------------------------------------------

    For consistency, the proposed NSFR disclosure template would 
require a company to clearly indicate the as-of date for disclosed 
amounts and report all amounts on a consolidated basis and expressed in 
millions of U.S. dollars or as a percentage, as applicable.
    Question 58: What, if any, unintended consequences might result 
from publicly disclosing a company's NSFR and its components, 
particularly in terms of liquidity risk? What modifications should be 
made to the proposed disclosure requirements to address any unintended 
consequences?
1. Disclosure of ASF Components
    The proposed rule would require a company to disclose its ASF 
components, separated into the following categories: (1) Capital and 
securities, which includes NSFR regulatory capital elements and other 
capital elements and securities; (2) retail funding, which includes 
stable retail deposits, less stable retail deposits, retail brokered 
deposits, and other retail funding; (3) wholesale funding, which 
includes operational deposits and other wholesale funding; and (4) 
other liabilities, which include the company's NSFR derivatives 
liability amount and any other liabilities not included in other 
categories.
    The proposed NSFR disclosure template would differ from the BCBS 
common template by including some additional ASF categories that are 
not separately broken out under the Basel III NSFR, such as retail 
brokered deposits. The proposed template would also provide market 
participants with additional information relevant to understanding a 
company's liquidity profile, such as the total derivatives liabilities 
amount (a component of the NSFR derivatives liabilities amount). These 
differences from the BCBS common template would provide greater public 
transparency without reducing comparability across jurisdictions, since 
the broken-out line items could simply be added back together to 
produce a comparable total and the extra line items can simply be 
ignored.
2. Disclosure of RSF Components
    The proposed disclosure requirements would require a company to 
disclose its RSF components, separated into the following categories: 
(1) Total HQLA and each of its component asset categories (i.e., level 
1, level 2A, and level 2B liquid assets); (2) assets other than HQLA 
that are assigned a zero percent RSF factor; (3) operational deposits; 
(4) loans and securities, separated into categories including retail 
mortgages and securities that are not HQLA; (5) other assets, which 
include commodities, certain components of the company's derivatives 
RSF amount, and all other assets not included in another category 
(including nonperforming assets); \95\ and (6) undrawn amounts of 
committed credit and liquidity facilities.
---------------------------------------------------------------------------

    \95\ A company would be required to disclose nonperforming 
assets as part of the line item for other assets and nonperforming 
assets, rather than as part of a line item based on the type of 
asset that has become nonperforming.
---------------------------------------------------------------------------

    Similar to the proposed disclosure format with respect to ASF 
components, the proposed NSFR disclosure template would differ in some 
respects from the BCBS common template to provide more granular 
information regarding RSF components without undermining comparability 
across jurisdictions. For example, the proposed rule would require 
disclosure of a company's level 1, level 2A, and level 2B liquid assets 
by maturity category, which is not required by the BCBS common 
template, to assist market participants and other parties in assessing 
the composition of a company's HQLA.\96\ Additionally, because some 
assets that would be assigned a zero percent RSF factor are not 
included as HQLA under the LCR rule, such as ``currency and coin'' and 
certain ``trade date

[[Page 35160]]

receivables,'' the proposed template includes a distinct category for 
``zero percent RSF assets that are not level 1 liquid assets'' that the 
BCBS common template does not include. The proposed NSFR disclosure 
template also differs from the BCBS common template in its presentation 
of the components of a company's derivatives RSF amount, generally to 
improve the clarity of disclosure by separating components into 
distinct rows and by including the total derivatives asset amount so 
that market participants can better understand a company's NSFR 
derivatives calculation.
---------------------------------------------------------------------------

    \96\ See Sec.  __.20 of the LCR rule.
---------------------------------------------------------------------------

    As discussed in sections II.D.3.c and d of this SUPPLEMENTARY 
INFORMATION section, the proposed rule would assign RSF factors to 
encumbered assets under Sec.  __.106(c) and (d). A company would be 
required to include encumbered assets in a cell of the NSFR disclosure 
template based on the asset category and asset maturity rather than 
based on the encumbrance period. For example, a level 2A liquid asset 
that matures in one year or more that is encumbered for a remaining 
period of nine months would be included in the level 2A liquid asset 
row and maturity of one year or more column, along with other level 2A 
liquid assets that have a similar maturity. This location in the NSFR 
disclosure template would not change the RSF factor assigned to the 
asset. In the preceding example, therefore, the covered company's 
weighted amount for the row would reflect an RSF factor of 50 percent 
assigned to the encumbered level 2A liquid asset. Similar treatment 
would apply for an asset provided or received by a company as variation 
margin to which an RSF factor is assigned under Sec.  __.107. 
Disclosure by asset category and maturity would provide market 
participants a better understanding of the actual assets of a company 
rather than having rows that combine asset categories.

C. Qualitative Disclosure Requirements

    A covered company subject to the proposed disclosure requirements 
would be required to provide a qualitative discussion of the company's 
NSFR and its components sufficient to facilitate an understanding of 
the calculation and results. This qualitative discussion would 
supplement the quantitative information disclosures in a company's NSFR 
disclosure template described above and would enable market 
participants and other parties to better understand a company's NSFR 
and its components. The proposed rule would not prescribe the content 
or format of a company's qualitative disclosures; rather, it would 
allow flexibility for discussion based on each company's particular 
circumstances. The proposed rule would, however, provide guidance 
through examples of topics that a company may discuss. These examples 
include (1) the main drivers of the company's NSFR; (2) changes in the 
company's NSFR over time and the causes of such changes (for example, 
changes in strategies or circumstances); (3) concentrations of funding 
sources and changes in funding structure; (4) concentrations of 
available and required stable funding within a covered company's 
corporate structure (for example, across legal entities); and (5) other 
sources of funding or other factors in the NSFR calculation that the 
company considers to be relevant to facilitate an understanding of its 
liquidity profile.
    The Board recently proposed disclosure requirements under the LCR 
rule, which also include a qualitative disclosure section.\97\ Given 
that the proposed rule and the LCR rule would be complementary 
quantitative liquidity requirements, a company subject to both 
disclosure requirements would be permitted to combine the two 
qualitative disclosures, as long as the specific qualitative disclosure 
requirements of each are satisfied by such a combined qualitative 
disclosure section.
---------------------------------------------------------------------------

    \97\ ``Liquidity Coverage Ratio: Public Disclosure Requirements; 
Extension of Compliance Period for Certain Companies to Meet the 
Liquidity Coverage Ratio Requirements,'' 80 FR 75010 (December 1, 
2015).
---------------------------------------------------------------------------

D. Frequency and Timing of Disclosure

    The proposed rule would require a company to provide timely public 
disclosures after each calendar quarter. Disclosure on a quarterly 
basis would provide market participants and other parties with 
information to help assess the liquidity risk profiles of companies 
making the disclosures, while reducing compliance costs that could 
result from more frequent public disclosure. A quarterly disclosure 
period would alleviate burden by aligning with the frequency of 
periodic public disclosures in other contexts, such as those required 
under Federal securities laws and regulations.
    The purpose of the proposed rule's public disclosure requirements 
would be to provide market participants and the public with periodic 
information regarding a company's funding structure, rather than real-
time information or event-driven disclosures regarding a company's 
liquidity profile. The agencies will have access to other sources of 
information to enable ongoing monitoring of companies' liquidity risk 
profiles and compliance with the proposed rule.
    The proposed rule would recognize that the timing of disclosures 
required under the Federal banking laws may not always coincide with 
the timing of disclosures required under other Federal laws, including 
disclosures required under the Federal securities laws. For calendar 
quarters that do not correspond to a company's fiscal year or quarter 
end, the agencies would consider those disclosures that are made within 
45 days of the end of the calendar quarter (or within 60 days for the 
limited purpose of the company's first reporting period in which it is 
subject to the proposed rule's disclosure requirements) as timely. In 
general, where a company's fiscal year end coincides with the end of a 
calendar quarter, the agencies consider disclosures to be timely if 
they are made no later than the applicable SEC disclosure deadline for 
the corresponding Form 10-K annual report. In cases where a company's 
fiscal year end does not coincide with the end of a calendar quarter, 
the agencies would consider the timeliness of disclosures on a case-by-
case basis.
    This approach to timely disclosures is consistent with the approach 
to public disclosures that the agencies have taken in the context of 
other regulatory reporting and disclosure requirements. For example, 
the agencies have used the same indicia of timeliness with respect to 
public disclosures required under the agencies' risk-based capital 
rules and proposed under the LCR rule.\98\
---------------------------------------------------------------------------

    \98\ See 78 FR 62018, 62129 (October 11, 2013); 80 FR 75010, 
75013 (December 1, 2015).
---------------------------------------------------------------------------

    As noted above, a company must publicly disclose, in a direct and 
prominent manner, the information required by the proposed rule on its 
public internet site or in its public financial or other public 
regulatory reports. The agencies are not proposing specific criteria 
for what it means for a disclosure to be ``direct and prominent,'' but 
the agencies expect that the disclosures should be readily accessible 
to the general public for a period of at least five years after the 
disclosure date.
    The first reporting period for which a company would be required to 
disclose the company's NSFR and its components is the calendar quarter 
that begins on the date the company becomes subject to the proposed 
NSFR requirement. For example, a company that becomes subject to the 
proposed NSFR requirement on January 1, 2018, would be required to 
commence providing the public disclosures for the calendar quarter that 
ends on March 31,

[[Page 35161]]

2018. Its disclosures for this period would then be required to remain 
publicly available until at least March 31, 2023.
    Question 59: Under what circumstances, if any, should the agencies 
require more frequent or less frequent public disclosures of a 
company's NSFR and its components? What benefits or negative effects 
may result if, in addition to required quarterly public disclosures, 
the agencies require a company to publicly disclose qualitative or 
quantitative information about the company's NSFR or its components 
with 30 days' prior written notice within a calendar quarter?
    Question 60: Should the agencies issue any guidance regarding the 
term ``direct and prominent?'' If so, what factors should be included 
in such guidance?

VI. Impact Assessment

    The agencies assessed the potential impact of the proposed rule 
\99\ and, based on available information, expect the benefits to exceed 
the costs.\100\ As discussed in section I of this SUPPLEMENTARY 
INFORMATION section, the proposed rule is designed to reduce the 
likelihood that disruptions to a covered company or modified NSFR 
holding company's regular sources of funding will compromise its 
liquidity position, as well as to promote improvements in the 
measurement and management of liquidity risk. By requiring covered 
companies and modified NSFR holding companies to maintain stable 
funding profiles, the proposed rule is intended to reduce liquidity 
risk in the financial sector and provide for a safer and more resilient 
financial system.
---------------------------------------------------------------------------

    \99\ As discussed in section XI of this SUPPLEMENTARY 
INFORMATION section, the OCC also analyzed the proposed rule under 
the factors in the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1532).
    \100\ The BCBS recently published a review of the literature on 
the costs and benefits of liquidity regulation and found that 
existing literature, although limited given that many liquidity 
requirements are relatively new, supports the view that the net 
social benefit of liquidity regulation is expected to be 
significantly positive. See Basel Committee on Banking Supervision, 
``Literature review on integration of regulatory capital and 
liquidity instruments'' (March 2016), available at https://www.bis.org/bcbs/publ/wp30.pdf (BCBS literature review).
---------------------------------------------------------------------------

    The potential costs considered by the agencies include the extent 
to which covered companies and modified NSFR holding companies would 
currently fall short of the proposed NSFR requirement and any costs 
associated with balance-sheet adjustments that would be necessary to 
come into compliance or future balance-sheet adjustments to maintain 
compliance in the future; \101\ ongoing operational and administrative 
costs related to the proposed rule's calculation, disclosure, and 
shortfall notification requirements; possible costs to customers in the 
form of increased borrowing costs; and the possibility of reduced 
financial intermediation or economic output in the United States.
---------------------------------------------------------------------------

    \101\ Analysis of potential shortfalls focused on the 
consolidated level for covered companies that are depository 
institution holding companies and did not include separate shortfall 
analyses for covered companies that are depository institutions. See 
infra note 103. The OCC's impact analysis, discussed in section XI 
of this SUPPLEMENTARY INFORMATION section estimates the shortfall 
and costs for national banks and Federal savings associations.
---------------------------------------------------------------------------

    The potential benefits considered include a reduction in the 
likelihood, relative to a banking system without an NSFR requirement, 
that a covered company or modified NSFR holding company would fail or 
experience material financial distress; the reduced likelihood of a 
financial crisis occurring and the reduced severity of a financial 
crisis if one were to occur; and the improved transparency and improved 
market discipline due to the proposed rule's public disclosure 
requirements.

A. Analysis of Potential Costs

    The agencies considered the extent to which any covered companies 
or modified NSFR holding companies would fall short of the proposed 
NSFR requirement or modified NSFR requirement, respectively, if they 
were currently in effect and would need to make balance-sheet 
adjustments, such as reducing short-term funding or increasing holdings 
of liquid assets, in order to come into compliance.
    To estimate shortfall amounts, the agencies calculated ASF and RSF 
amounts at the consolidated level for depository institution holding 
companies that would be subject to the NSFR requirement or modified 
NSFR requirement. These estimates were based on information submitted 
by certain depository institution holding companies for inclusion in 
the most recent Basel III Quantitative Impact Study (QIS), as well as 
other available information, including data collected on the FR 2052a 
report and publicly available data.\102\ In addition, for covered 
companies and modified NSFR holding companies that did not submit data 
through the QIS process, the estimates were based on information 
collected on Federal Reserve forms FR Y-9C and FR 2052b, as well as 
other supervisory data.
---------------------------------------------------------------------------

    \102\ See https://www.bis.org/bcbs/qis for additional QIS 
information. Individual company submission data is confidential 
supervisory information. Shortfall analysis used QIS data as of June 
30, 2015.
---------------------------------------------------------------------------

    As of December 2015, 15 depository institution holding companies 
would be covered companies under the proposed rule and 20 depository 
institution holding companies would be modified NSFR holding companies. 
Using the approach described above, the agencies estimate that nearly 
all of these companies would be in compliance with the proposed NSFR or 
modified NSFR requirement if those requirements were in effect today. 
In the aggregate, the agencies estimate that covered companies and 
modified NSFR holding companies would face a shortfall of approximately 
$39 billion, equivalent to 0.5 percent of the aggregate RSF amount that 
would apply across all firms. For the limited number of firms that 
would have a shortfall, the $39 billion shortfall would be equivalent 
to 4.3 percent of their total RSF amount.
    Because nearly all covered companies and modified NSFR holding 
companies are estimated to be in compliance with the proposed NSFR 
requirement and modified NSFR requirement, respectively, and because 
the aggregated ASF shortfall amount is estimated to be small relative 
to the aggregate size of these companies, the agencies do not expect 
most companies to incur significant costs in connection with making 
changes to their funding structures, assets, commitments, or derivative 
exposures to comply with the proposed NSFR requirement.\103\ If the 
companies with a shortfall elect to eliminate it by replacing 
liabilities that are assigned a lower ASF factor with liabilities that 
are assigned a higher ASF factor, they would likely incur a greater 
interest expense. If all companies with a shortfall were to take this 
approach, the agencies currently estimate an increase in those 
companies' interest expense of approximately $519 million per 
year.\104\ This $519 million increase

[[Page 35162]]

per year in interest expense is only 0.38 percent of the total net 
income of $138 billion for all covered companies and modified NSFR 
holding companies, as reported for calendar year 2015 on form FR Y-9C. 
However, for the companies with a shortfall, it is a materially higher 
percentage of their total net income for calendar year 2015.
---------------------------------------------------------------------------

    \103\ The agencies expect similar results for covered companies 
that are depository institutions, given the lack of a shortfall at 
these companies' parent holding companies; the extent to which the 
consolidated assets, liabilities, commitments, and exposures of the 
parent holding companies are attributable to the depository 
institution subsidiary; and the greater focus of depository 
institutions on traditional banking activities such as deposit-
taking that tend to result in a higher NSFR than a consolidated NSFR 
that may also include non-bank entities and activities, such as 
broker-dealer or derivatives business lines.
    \104\ This approximate cost is based on an estimated difference 
in relative interest expense between funding from financial sector 
entities that matures in 90 days or less (assigned a zero percent 
ASF factor) and unsecured debt that matures in 3 years (assigned a 
100 percent ASF factor) of approximately 1.33 percent, based on 
rates as of March 31, 2016. $39 billion x 0.0133 = $519 million.
---------------------------------------------------------------------------

    In addition, it is possible that covered companies and modified 
NSFR holding companies could incur marginal costs in the future if they 
must make balance-sheet adjustments that they would not otherwise make 
in order to maintain compliance with the proposed rule. For example, a 
company subject to the proposed rule may fund expansion of its balance 
sheet with more equity or long-term debt than it otherwise would have. 
On the margin, such equity or long-term debt could be more expensive 
than alternative, less stable forms of funding, such as short-term 
wholesale funding. At the same time, however, a company subject to the 
proposed rule may have lower funding costs due to a more stable funding 
profile, which could offset some of the increased funding costs. Thus, 
the agencies do not expect covered companies and modified NSFR holding 
companies to incur significant costs in connection with balance-sheet 
adjustments to maintain compliance with the proposed requirements; 
however, these costs may increase depending on a variety of factors, 
including future differences between the rates on short- and long-term 
liabilities.
    As noted above in this SUPPLEMENTARY INFORMATION section, 
operational and administrative compliance costs in connection with the 
proposed rule are expected to be relatively modest. Calculation and 
disclosure requirements under the proposed rule would be based largely 
on the carrying values, as determined under GAAP, of the assets, 
liabilities, and equity of covered companies and modified NSFR holding 
companies. As a result, in most cases these firms should be able to 
leverage existing management information systems to comply with the 
proposed rule's calculation and disclosure requirements. The agencies 
therefore expect any additional operational costs associated with 
ongoing compliance with the proposed rule to be relatively minor.
    Because most covered companies and modified NSFR holding companies 
are not expected to incur significant costs in connection with balance-
sheet adjustments to comply with the proposed requirements or manage 
operational compliance, the agencies do not expect the proposed rule to 
result in material costs being passed on to customers, for example in 
the form of higher interest rates or fees.\105\ Similarly, the agencies 
do not expect covered companies or modified NSFR holding companies to 
materially alter their levels of lending as a result of the proposed 
rule. Accordingly, the agencies also do not expect the proposed rule to 
cause a material reduction in aggregate financial intermediation or 
economic output in the United States.
---------------------------------------------------------------------------

    \105\ The BCBS literature review reports that existing studies 
tend to show that, to the extent banking organizations incur costs 
in connection with liquidity requirements, these firms typically 
face market constraints on their ability to pass along these costs 
to customers in the form of higher lending charges. See supra note 
100. The combination of these constraints and the fact that most 
covered companies and modified NSFR holding companies currently 
exceed the proposed rule's minimum stable funding requirement 
(meaning these companies in the aggregate are likely to face only 
relatively modest costs in connection with coming into compliance 
with the proposed NSFR requirement or modified NSFR requirement), 
suggest that the proposed rule should not result in significant 
costs being passed on to customers.
---------------------------------------------------------------------------

    It is possible that the proposed rule could impose some 
macroeconomic costs. For example, it is possible that covered companies 
and modified NSFR holding companies could respond to the proposed 
requirements by ``hoarding'' liquidity to some degree rather than using 
it to relieve funding needs during a period of significant stress--
possibly out of fear that dipping below a certain NSFR could project 
weakness to counterparties, investors, or market analysts. Incentives 
to hoard liquidity already exist in the market, even without the 
proposed requirement, as demonstrated by the hoarding of liquidity by 
financial firms during the 2007-2009 financial crisis.\106\ Potential 
effects of the proposed rule on this dynamic are difficult to assess 
and quantify given the degree of uncertainty that exists during periods 
of significant stress, but there are factors that may mitigate or 
counter it. For example, existing market incentives to hoard liquidity 
may be lessened to some degree based on a covered company's or modified 
NSFR holding company's stronger funding position going into a period of 
significant stress based on compliance with the proposed rule.\107\ The 
proposed rule's supervisory response framework is also designed to 
mitigate incentives that would cause firms to hoard liquidity; as 
discussed in section III of this SUPPLEMENTARY INFORMATION section, the 
proposed rule would provide flexibility for the appropriate Federal 
banking agency to respond based on the circumstances of a particular 
case--for example, if a covered company's NSFR were to fall below 1.0 
based on the company's use of liquidity during a period of market 
stress.
---------------------------------------------------------------------------

    \106\ See Markus Brunnermeier, ``Deciphering the Liquidity and 
Credit Crunch 2007-2008,'' 23 Journal of Economic Perspectives 77 
(2009); Mark Carlson, ``Lessons from the Historical Use of Reserve 
Requirements in the United States to Promote Bank Liquidity,'' Board 
of Governors of the Federal Reserve System, Finance and Economics 
Discussion Series 2013-11 (2013).
    \107\ As discussed further below, a more resilient funding 
profile heading into a period of significant stress can alleviate 
pressure on a covered company or modified NSFR holding company to 
reduce credit availability in response to the stress. See infra note 
111.
---------------------------------------------------------------------------

B. Analysis of Potential Benefits

    The proposed rule is designed to reduce the likelihood that 
disruptions to a covered company's or a modified NSFR holding company's 
regular sources of funding will compromise its liquidity position and 
lead to or exacerbate an idiosyncratic or systemic stress. For example, 
the proposed NSFR requirement would limit overreliance on short-term 
wholesale funding from financial sector entities (which would be 
assigned a low ASF factor) to fund holdings of illiquid assets (which 
would be assigned high RSF factors). The proposed rule's quantitative 
requirements are also designed to facilitate better management of 
liquidity risks beyond the LCR rule's 30-calendar day period, 
complementing the LCR rule and other aspects of the agencies' liquidity 
risk regulatory framework, and provide a consistent and comparable 
metric to measure funding stability across covered companies, modified 
NSFR holding companies, and other banking organizations subject to 
similar stable funding requirements in other jurisdictions.
    To estimate the potential macroeconomic benefits of the proposed 
rule, the agencies considered the extent to which the proposed rule 
could reduce the likelihood or severity of a financial crisis. A BCBS 
study entitled, ``An Assessment of the Long-Term Economic Impact of 
Stronger Capital and Liquidity Requirements'' (the BCBS Economic Impact 
report) estimated that, prior to the regulatory reforms undertaken 
since 2009, the probability that a financial crisis could occur in a 
given year was between 3.5 percent and 5.2 percent and that the 
cumulative economic cost of any single crisis was between 20 percent 
and 100 percent of

[[Page 35163]]

annual global economic output.\108\ If the NSFR reduces the probability 
of a financial crisis even slightly, then the benefits of avoiding the 
costs of a crisis, specifically a decline in output, would outweigh the 
relatively modest aggregate cost of the rule.
---------------------------------------------------------------------------

    \108\ Basel Committee on Bank Supervision, ``An assessment of 
the long-term economic impact of stronger capital and liquidity 
requirements'' (August 2010), available at http://www.bis.org/publ/bcbs173.pdf.
---------------------------------------------------------------------------

    As the 2007-2009 financial crisis demonstrated, unstable funding 
structures at major financial institutions can play a very large role 
in causing and deepening financial crises.\109\ For example, a large 
banking organization that relies heavily on unstable funding may be 
forced to sell illiquid assets at fire sale prices to meet its current 
obligations, which could further contribute to the firm's liquidity 
deterioration, exacerbate fire sale conditions in the broader financial 
markets, and amplify stresses at other financial firms. Conversely, 
maintenance of a more resilient funding profile heading into a period 
of significant stress can lessen pressure on a covered company or 
modified NSFR holding company to sell illiquid assets or reduce credit 
availability in response to the stress.\110\ The BCBS Economic Impact 
report estimated significant net benefits from the Basel III reforms, 
including the Basel III NSFR, in connection with reducing the 
likelihood and severity of financial crises.\111\
---------------------------------------------------------------------------

    \109\ See, e.g., Brunnermeier supra note 106; Gary Gorton and 
Andrew Metrick, ``Securitized Banking and the Run on Repo,'' 
National Bureau of Economic Research Working Paper 15223 (2009); and 
Marcin Kacperczyk and Philipp Schnabl, ``When Safe Proved Risky: 
Commercial Paper during the Financial Crisis of 2007-2009,'' 34 
Journal of Economic Perspectives 29 (2010).
    \110\ The BCBS literature review discusses studies of lending by 
banking organizations in the United States and France during the 
2007-2009 financial crisis, which showed that banking organizations 
with more stable funding profiles continued lending during the 
crisis to a greater degree than banking organizations that had 
weaker profiles. See BCBS literature review, supra note 100, pp. 26-
27. See also Marcia Millon Cornett, Jamie John McNutt, Philip E. 
Strahan, and Hassan Tehranian, ``Liquidity Risk Management and 
Credit Supply in the Financial Crisis,'' 101 Journal of Financial 
Economics 297 (2011), and Pierre Pessarossi and 
Fr[eacute]d[eacute]ric Vinas, ``The Supply of Long-Term Credit after 
a Funding Shock: Evidence from 2007-2009,'' Banque de France, 
D[eacute]bat [eacute]conomiques et financiers (2014, updated 2015).
    \111\ See BCBS Economic Impact report. While the BCBS Economic 
Impact report was based on an earlier version of the Basel III NSFR, 
its conclusions are also consistent with the final version issued by 
the BCBS.
---------------------------------------------------------------------------

    In addition, the proposed rule's public disclosure requirements are 
designed to improve transparency to the public and market participants 
regarding a covered company's or modified NSFR holding company's 
funding profile, including with respect to drivers of a company's 
liquidity risk. As discussed in section V.B of this SUPPLEMENTARY 
INFORMATION section, the proposed rule's use of a consistent, 
quantitative metric across covered companies and a standardized 
disclosure format should enable market participants to better assess 
and compare funding characteristics of covered companies in the United 
States and other banking organizations subject to similar stable 
funding requirements in other jurisdictions.
    Question 61: The agencies invite comment on all aspects of the 
foregoing impact assessment associated with the proposed rule. What, if 
any, additional costs and benefits should be considered? Commenters are 
encouraged to submit data on potential shortfalls of covered companies 
or modified NSFR holding companies, as well as potential costs or 
benefits of the proposed rule that the agencies may not have 
considered.

VII. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, sec. 
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking 
agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The Federal banking agencies invite 
your comments on how to make this proposal easier to understand. For 
example:
     Have the agencies organized the material to suit your 
needs? If not, how could this material be better organized?
     Are the requirements in the proposed rule clearly stated? 
If not, how could the proposed rule be more clearly stated?
     Does the proposed rule contain language or jargon that is 
not clear? If so, which language requires clarification?
     Would a different format (e.g., grouping and order of 
sections, use of headings, paragraphing) make the proposed rule easier 
to understand? If so, what changes to the format would make the 
proposed rule easier to understand?
     What else could the agencies do to make the regulation 
easier to understand?

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act \112\ (RFA) requires an agency to 
either provide an initial regulatory flexibility analysis with a 
proposed rule for which general notice of proposed rulemaking is 
required or to certify that the proposed rule will not have a 
significant economic impact on a substantial number of small entities 
(defined for purposes of the RFA to include banks with assets less than 
or equal to $550 million). In accordance with section 3(a) of the RFA, 
the Board is publishing an initial regulatory flexibility analysis with 
respect to the proposed rule. The OCC and FDIC are certifying that the 
proposed rule will not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \112\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

Board

    Based on its analysis and for the reasons stated below, the Board 
believes that this proposed rule will not have a significant economic 
impact on a substantial number of small entities. Nevertheless, the 
Board is publishing an initial regulatory flexibility analysis. A final 
regulatory flexibility analysis will be conducted after comments 
received during the public comment period have been considered.
    The proposed rule is intended to implement a quantitative liquidity 
requirement applicable for certain bank holding companies, savings and 
loan holding companies, and state member banks.
    Under regulations issued by the Small Business Administration, a 
``small entity'' includes firms within the ``Finance and Insurance'' 
sector with asset sizes that vary from $7.5 million or less in assets 
to $550 million or less in assets.\113\ The Board believes that the 
Finance and Insurance sector constitutes a reasonable universe of firms 
for these purposes because such firms generally engage in activities 
that are financial in nature. Consequently, bank holding companies, 
savings and loan holding companies, and state member banks with asset 
sizes of $550 million or less are small entities for purposes of the 
RFA. As of December 31, 2015, there were approximately 606 small state 
member banks, 3,268 small bank holding companies, and 166 small savings 
and loan holding companies.
---------------------------------------------------------------------------

    \113\ 13 CFR 121.201.
---------------------------------------------------------------------------

    As discussed in section I.C.2 of this SUPPLEMENTARY INFORMATION 
section, the proposed rule would generally apply to Board-regulated 
institutions with: (i) Consolidated total assets equal to $250 billion 
or more; (ii) consolidated total on-balance sheet foreign exposure 
equal to $10 billion or more; or (iii) consolidated total assets equal 
to $10 billion or more if that Board-regulated institution is a 
consolidated subsidiary of a company described in (i) or (ii). The

[[Page 35164]]

Board is also proposing to implement a modified NSFR requirement for 
top-tier bank holding companies and savings and loan holding companies 
that have consolidated total assets of $50 billion or more, but less 
than $250 billion, and that have less than $10 billion of consolidated 
total on-balance sheet foreign exposure. Neither the proposed NSFR 
requirement nor the proposed modified NSFR requirement would apply to 
(i) a grandfathered unitary savings and loan holding company \114\ that 
derives 50 percent or more of its total consolidated assets or 50 
percent of its total revenues on an enterprise-wide basis from 
activities that are not financial in nature under section 4(k) of the 
Bank Holding Company Act; \115\ (ii) a top-tier bank holding company or 
savings and loan holding company that is an insurance underwriting 
company; or (iii) a top-tier bank holding company or savings and loan 
holding company that has 25 percent or more of its total consolidated 
assets in subsidiaries that are insurance underwriting companies.\116\
---------------------------------------------------------------------------

    \114\ As described in section 10(c)(9)(A) of the Home Owners' 
Loan Act, 12 U.S.C. 1467a(c)(9)(A).
    \115\ 12 U.S.C. 1843(k).
    \116\ For purposes of (iii), the company must calculate its 
total consolidated assets in accordance with GAAP or estimate its 
total consolidated assets, subject to review and adjustment by the 
Board.
---------------------------------------------------------------------------

    Companies that are subject to the proposed rule therefore 
substantially exceed the $550 million asset threshold at which a 
banking entity is considered a ``small entity'' under SBA regulations. 
Because the proposed rule, if adopted in final form, would not apply to 
any company with assets of $550 million or less, the proposed rule is 
not expected to apply to any small entity for purposes of the RFA. The 
Board does not believe that the proposed rule duplicates, overlaps, or 
conflicts with any other Federal rules. In light of the foregoing, the 
Board does not believe that the proposed rule, if adopted in final 
form, would have a significant economic impact on a substantial number 
of small entities supervised. Nonetheless, the Board seeks comment on 
whether the proposed rule would impose undue burdens on, or have 
unintended consequences for, small organizations, and whether there are 
ways such potential burdens or consequences could be minimized.

OCC

    The RFA requires an agency to provide an initial regulatory 
flexibility analysis with a proposed rule or to certify that the rule 
will not have a significant economic impact on a substantial number of 
small entities (defined for purposes of the RFA to include banking 
entities with total assets of $550 million or less and trust companies 
with assets of $38.5 million or less).
    As discussed previously in this SUPPLEMENTARY INFORMATION section, 
the proposed rule generally would apply to national banks and Federal 
savings associations with: (i) Consolidated total assets equal to $250 
billion or more; (ii) consolidated total on-balance sheet foreign 
exposure equal to $10 billion or more; or (iii) consolidated total 
assets equal to $10 billion or more if a national bank or Federal 
savings association is a consolidated subsidiary of a company subject 
to the proposed rule. As of March 25, 2016, the OCC supervises 1,032 
small entities. Since the proposed rule would only apply to 
institutions that have consolidated total assets or consolidated total 
on-balance sheet foreign exposure equal to $10 billion or more, the 
proposed rule would not have any impact on small banks and small 
Federal savings associations. Therefore, the proposed rule would not 
have a significant economic impact on a substantial number of small 
OCC-supervised entities.
    The OCC certifies that the proposed rule would not have a 
significant economic impact on a substantial number of small national 
banks and small Federal savings associations.

FDIC

    The RFA requires an agency to provide an initial regulatory 
flexibility analysis with a proposed rule or to certify that the rule 
will not have a significant economic impact on a substantial number of 
small entities (defined for purposes of the RFA to include banking 
entities with total assets of $550 million or less).
    As described in section I of this SUPPLEMENTARY INFORMATION 
section, the proposed rule would establish a quantitative liquidity 
standard for large and internationally active banking organizations 
with $250 billion or more in total assets or $10 billion or more of on-
balance sheet foreign exposure and their consolidated subsidiary 
depository institutions with $10 billion or more in total consolidated 
assets. One FDIC-supervised institution satisfies the foregoing 
criteria, and it is not a small entity. As of December 31, 2015, based 
on a $550 million threshold, 2 (out of 3,262) small FDIC-supervised 
institutions were subsidiaries of a covered company. Therefore, the 
proposed rule will not have a significant economic impact on a 
substantial number of small entities under its supervisory 
jurisdiction.
    The FDIC certifies that the proposed rule would not have a 
significant economic impact on a substantial number of small FDIC-
supervised institutions.

IX. Riegle Community Development and Regulatory Improvement Act of 1994

    The Riegle Community Development and Regulatory Improvement Act of 
1994 (RCDRIA) requires that each Federal banking agency, in determining 
the effective date and administrative compliance requirements for new 
regulations that impose additional reporting, disclosure, or other 
requirements on insured depository institutions, consider, consistent 
with principles of safety and soundness and the public interest, any 
administrative burdens that such regulations would place on depository 
institutions, including small depository institutions, and customers of 
depository institutions, as well as the benefits of such regulations. 
In addition, new regulations that impose additional reporting, 
disclosures, or other new requirements on insured depository 
institutions generally must take effect on the first day of a calendar 
quarter that begins on or after the date on which the regulations are 
published in final form.\117\
---------------------------------------------------------------------------

    \117\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    The agencies note that comment on these matters has been solicited 
in other sections of this SUPPLEMENTARY INFORMATION section, and that 
the requirements of RCDRIA will be considered as part of the overall 
rulemaking process. In addition, the agencies also invite any other 
comments that further will inform the agencies' consideration of 
RCDRIA.

X. Paperwork Reduction Act

    Certain provisions of the proposed rule contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with 
the requirements of the PRA, the agencies may not conduct or sponsor, 
and the respondent is not required to respond to, an information 
collection unless it displays a currently-valid Office of Management 
and Budget (OMB) control number. The OMB control number for the Board 
is 7100-0367 and will be extended, with revision. The information 
collection requirements contained in this proposed rulemaking have been 
submitted by the OCC and FDIC to OMB for review and approval under 
section 3507(d) of the PRA (44 U.S.C. 3507(d)) and section

[[Page 35165]]

1320.11 of the OMB's implementing regulations (5 CFR 1320). The OCC and 
FDIC are seeking a new control number. The Board reviewed the proposed 
rule under the authority delegated to the Board by OMB.
    Comments are invited on:
    (a) Whether the collections of information are necessary for the 
proper performance of the agencies' functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimates of the burden of the information 
collections, including the validity of the methodology and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on 
aspects of this notice that may affect reporting, recordkeeping, or 
disclosure requirements and burden estimates should be sent to the 
addresses listed in the ADDRESSES section of this document. A copy of 
the comments may also be submitted to the OMB desk officer for the 
agencies: by mail to U.S. Office of Management and Budget, 725 17th 
Street NW., # 10235, Washington, DC 20503; by facsimile to (202) 395-
5806; or by email to: [email protected], Attention, Federal 
Banking Agency Desk Officer.

Proposed Information Collection

    Title of Information Collection: Net Stable Funding Ratio: 
Liquidity Risk Measurement Standards and Disclosure Requirements
    Frequency of Response: Quarterly, monthly, and event generated.
    Affected Public: Businesses or other for-profit.
    Respondents:
    FDIC: Insured state nonmember banks and state savings associations, 
insured state branches of foreign banks, and certain subsidiaries of 
these entities.
    OCC: National banks, Federal savings associations, or, pursuant to 
12 CFR 5.34(e)(3), an operating subsidiary thereof.
    Board: Insured state member banks, bank holding companies, and 
savings and loan holding companies.
    Abstract: The reporting requirements in the proposed rule are found 
in Sec.  __.110, the recordkeeping requirements are found in Sec. Sec.  
__.108(b) and __.110(b), and the disclosure requirements are found in 
Sec. Sec.  __.130 and __.131. The disclosure requirements are only for 
Board supervised entities.
    Section __.110 would require a covered company to take certain 
actions following any NSFR shortfall. A covered company would be 
required to notify its appropriate Federal banking agency of the 
shortfall no later than 10 business days (or such other period as the 
appropriate Federal banking agency may otherwise require by written 
notice) following the date that any event has occurred that would cause 
or has caused the covered company's NSFR to be less than 1.0. It must 
also submit to its appropriate Federal banking agency its plan for 
remediation of its NSFR to at least 1.0, and submit at least monthly 
reports on its progress to achieve compliance.
    Section __.108(b) provides that if an institution includes an ASF 
amount in excess of the RSF amount of the consolidated subsidiary, it 
must implement and maintain written procedures to identify and monitor 
applicable statutory, regulatory, contractual, supervisory, or other 
restrictions on transferring assets from the consolidated subsidiaries. 
These procedures must document which types of transactions the 
institution could use to transfer assets from a consolidated subsidiary 
to the institution and how these types of transactions comply with 
applicable statutory, regulatory, contractual, supervisory, or other 
restrictions. Section __.110(b) requires preparation of a plan for 
remediation to achieve an NSFR of at least equal to 1.0, as required 
under Sec.  __.100.
    Section __.130 requires that a depository institution holding 
company subject to the proposed NSFR or modified NSFR requirements 
publicly disclose its NSFR calculated on the last business day of each 
calendar quarter, in a direct and prominent manner on its public 
internet site or in its public financial or other public regulatory 
reports. These disclosures must remain publicly available for at least 
five years after the date of disclosure. Section __.131 specifies the 
quantitative and qualitative disclosures required and provides the 
disclosure template to be used.

PRA Burden Estimates

    Estimated average hour per response:
    Reporting Burden:
    Sec.  __.110(a)--0.25 hours.
    Sec.  __.110(b)--0.50 hours.
    Recordkeeping Burden:
    Sec.  __.108(b)--20 hours.
    Sec.  __.110(b)--100 hours.
    Disclosure Burden (Board only):
    Sec. Sec.  __.130 and __.131--24 hours.
OCC
    Number of Respondents: 17 (17 for reporting requirements and Sec.  
__.40(b) and Sec.  __.110(b) recordkeeping requirements; 17 for Sec.  
__.22(a)(2), Sec.  __.22(a)(5), and Sec.  __.108(b) recordkeeping 
requirements).
    Total Estimated Annual Burden: 2,112 hours.

Board

    Number of Respondents: 39 (3 for reporting requirements and Sec.  
__.40(b) and Sec.  __.110(b) recordkeeping requirements; 39 for Sec.  
__.22(a)(2), Sec.  __.22(a)(5), and Sec.  __.108(b) recordkeeping 
requirements; 35 for disclosure requirements).
    Current Total Estimated Annual Burden: 1,153 hours.
    Proposed Total Estimated Annual Burden: 4,453 hours.
FDIC
    Number of Respondents: 1 (1 for reporting requirements and Sec.  
__.40(b) and Sec.  __.110(b) recordkeeping requirements; 1 for Sec.  
__.22(a)(2), Sec.  __.22(a)(5), and Sec.  __.108(b) recordkeeping 
requirements).
    Total Estimated Annual Burden: 124.25 hours.

XI. OCC Unfunded Mandates Reform Act of 1995 Determination

    The OCC has analyzed the proposed rule under the factors in the 
Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532). Under this 
analysis, the OCC considered whether the proposed rule includes a 
Federal mandate that may result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted annually for inflation).
    The OCC has determined this proposed rule is likely to result in 
the expenditure by the private sector of $100 million or more in any 
one year (adjusted annually for inflation). The OCC has prepared a 
budgetary impact analysis and identified and considered alternative 
approaches. When the proposed rule is published in the Federal 
Register, the full text of the OCC's analysis will be available at: 
http://www.regulations.gov, Docket ID OCC-2014-0029.

[[Page 35166]]

Text of Common Rule

(All agencies)

PART [INSERT PART]--LIQUIDITY RISK MEASUREMENT, STANDARDS, AND 
MONITORING

Subparts H, I, and J--Reserved

Subpart K--Net Stable Funding Ratio


Sec.  __.100  Net stable funding ratio.

    (a) Minimum net stable funding ratio requirement. Beginning January 
1, 2018, a [BANK] must maintain a net stable funding ratio that is 
equal to or greater than 1.0 on an ongoing basis in accordance with 
this subpart.
    (b) Calculation of the net stable funding ratio. For purposes of 
this part, a [BANK]'s net stable funding ratio equals:
    (1) The [BANK]'s ASF amount, calculated pursuant to Sec.  __.103 of 
this part, as of the calculation date; divided by
    (2) The [BANK]'s RSF amount, calculated pursuant to Sec.  __.105 of 
this part, as of the calculation date.


Sec.  __.101  Determining maturity.

    For purposes of calculating its net stable funding ratio, including 
its ASF amount and RSF amount, under subparts K through N, a [BANK] 
shall assume each of the following:
    (a) With respect to any NSFR liability, the NSFR liability matures 
according to Sec.  __.31(a)(1) of this part without regard to whether 
the NSFR liability is subject to Sec.  __.32 of this part;
    (b) With respect to an asset, the asset matures according to Sec.  
__.31(a)(2) of this part without regard to whether the asset is subject 
to Sec.  __.33 of this part;
    (c) With respect to an NSFR liability or asset that is perpetual, 
the NSFR liability or asset matures one year or more after the 
calculation date;
    (d) With respect to an NSFR liability or asset that has an open 
maturity, the NSFR liability or asset matures on the first calendar day 
after the calculation date, except that in the case of a deferred tax 
liability, the NSFR liability matures on the first calendar day after 
the calculation date on which the deferred tax liability could be 
realized; and
    (e) With respect to any principal payment of an NSFR liability or 
asset, such as an amortizing loan, that is due prior to the maturity of 
the NSFR liability or asset, the payment matures on the date on which 
it is contractually due.


Sec.  __.102  Rules of construction.

    (a) Balance-sheet metric. Unless otherwise provided in this 
subpart, an NSFR regulatory capital element, NSFR liability, or asset 
that is not included on a [BANK]'s balance sheet is not assigned an RSF 
factor or ASF factor, as applicable; and an NSFR regulatory capital 
element, NSFR liability, or asset that is included on a [BANK]'s 
balance sheet is assigned an RSF factor or ASF factor, as applicable.
    (b) Netting of certain transactions. Where a [BANK] has secured 
lending transactions, secured funding transactions, or asset exchanges 
with the same counterparty and has offset the gross value of 
receivables due from the counterparty under the transactions by the 
gross value of payables under the transactions due to the counterparty, 
the receivables or payables associated with the offsetting transactions 
that are not included on the [BANK]'s balance sheet are treated as if 
they were included on the [BANK]'s balance sheet with carrying values, 
unless the criteria in [Sec.  __.10(c)(4)(ii)(E)(1) through (3) of the 
AGENCY SUPPLEMENTARY LEVERAGE RATIO RULE] are met.
    (c) Treatment of Securities Received in an Asset Exchange by a 
Securities Lender. Where a [BANK] receives a security in an asset 
exchange, acts as a securities lender, includes the carrying value of 
the security on its balance sheet, and has not rehypothecated the 
security received:
    (1) The security received by the [BANK] is not assigned an RSF 
factor; and
    (2) The obligation to return the security received by the [BANK] is 
not assigned an ASF factor.


Sec.  __.103  Calculation of available stable funding amount.

    A [BANK]'s ASF amount equals the sum of the carrying values of the 
[BANK]'s NSFR regulatory capital elements and NSFR liabilities, in each 
case multiplied by the ASF factor applicable in Sec.  __.104 or Sec.  
__.107(c) and consolidated in accordance with Sec.  __.108.


Sec.  __.104  ASF factors.

    (a) NSFR regulatory capital elements and NSFR liabilities assigned 
a 100 percent ASF factor. An NSFR regulatory capital element or NSFR 
liability of a [BANK] is assigned a 100 percent ASF factor if it is one 
of the following:
    (1) An NSFR regulatory capital element; or
    (2) An NSFR liability that has a maturity of one year or more from 
the calculation date, is not described in paragraph (e)(3) of this 
section, and is not a retail deposit or brokered deposit provided by a 
retail customer or counterparty.
    (b) NSFR liabilities assigned a 95 percent ASF factor. An NSFR 
liability of a [BANK] is assigned a 95 percent ASF factor if it is a 
stable retail deposit (regardless of maturity or collateralization) 
held at the [BANK].
    (c) NSFR liabilities assigned a 90 percent ASF factor. An NSFR 
liability of a [BANK] is assigned a 90 percent ASF factor if it is 
funding provided by a retail customer or counterparty that is:
    (1) A retail deposit (regardless of maturity or collateralization) 
other than a stable retail deposit or brokered deposit;
    (2) A reciprocal brokered deposit where the entire amount is 
covered by deposit insurance;
    (3) A brokered sweep deposit that is deposited in accordance with a 
contract between the retail customer or counterparty and the [BANK], a 
controlled subsidiary of the [BANK], or a company that is a controlled 
subsidiary of the same top-tier company of which the [BANK] is a 
controlled subsidiary, where the entire amount of the deposit is 
covered by deposit insurance; or
    (4) A brokered deposit that is not a reciprocal brokered deposit or 
a brokered sweep deposit, that is not held in a transactional account, 
and that matures one year or more from the calculation date.
    (d) NSFR liabilities assigned a 50 percent ASF factor. An NSFR 
liability of a [BANK] is assigned a 50 percent ASF factor if it is one 
of the following:
    (1) Unsecured wholesale funding that:
    (i) Is not provided by a financial sector entity, a consolidated 
subsidiary of a financial sector entity, or a central bank;
    (ii) Matures less than one year from the calculation date; and
    (iii) Is not a security issued by the [BANK] or an operational 
deposit placed at the [BANK];
    (2) A secured funding transaction with the following 
characteristics:
    (i) The counterparty is not a financial sector entity, a 
consolidated subsidiary of a financial sector entity, or a central 
bank;
    (ii) The secured funding transaction matures less than one year 
from the calculation date; and
    (iii) The secured funding transaction is not a collateralized 
deposit that is an operational deposit placed at the [BANK];
    (3) Unsecured wholesale funding that:
    (i) Is provided by a financial sector entity, a consolidated 
subsidiary of a financial sector entity, or a central bank;
    (ii) Matures six months or more, but less than one year, from the 
calculation date; and

[[Page 35167]]

    (iii) Is not a security issued by the [BANK] or an operational 
deposit;
    (4) A secured funding transaction with the following 
characteristics:
    (i) The counterparty is a financial sector entity, a consolidated 
subsidiary of a financial sector entity, or a central bank;
    (ii) The secured funding transaction matures six months or more, 
but less than one year, from the calculation date; and
    (iii) The secured funding transaction is not a collateralized 
deposit that is an operational deposit;
    (5) A security issued by the [BANK] that matures six months or 
more, but less than one year, from the calculation date;
    (6) An operational deposit placed at the [BANK];
    (7) A brokered deposit provided by a retail customer or 
counterparty that is not described in paragraphs (c) or (e)(2) of this 
section; or
    (8) Any other NSFR liability that matures six months or more, but 
less than one year, from the calculation date and is not described in 
paragraphs (a) through (c), (d)(1) through (d)(7), or (e)(3) of this 
section.
    (e) NSFR liabilities assigned a zero percent ASF factor. An NSFR 
liability of a [BANK] is assigned a zero percent ASF factor if it is 
one of the following:
    (1) A trade date payable that results from a purchase by the [BANK] 
of a financial instrument, foreign currency, or commodity that is 
contractually required to settle within the lesser of the market 
standard settlement period for the particular transaction and five 
business days from the date of the sale;
    (2) A brokered deposit provided by a retail customer or 
counterparty that is not a reciprocal brokered deposit or brokered 
sweep deposit, is not held in a transactional account, and matures less 
than six months from the calculation date;
    (3) An NSFR liability owed to a retail customer or counterparty 
that is not a deposit and is not a security issued by the [BANK];
    (4) A security issued by the [BANK] that matures less than six 
months from the calculation date; or
    (5) An NSFR liability with the following characteristics:
    (i) The counterparty is a financial sector entity, a consolidated 
subsidiary, or a central bank;
    (ii) The NSFR liability matures less than six months from the 
calculation date or has an open maturity; and
    (iii) The NSFR liability is not a security issued by the [BANK] or 
an operational deposit placed at the [BANK]; or
    (6) Any other NSFR liability that matures less than six months from 
the calculation date and is not described in paragraphs (a) through (d) 
or (e)(1) through (5) of this section.


Sec.  __.105  Calculation of required stable funding amount.

    A [BANK]'s RSF amount equals the sum of:
    (a) The carrying values of a [BANK]'s assets (other than amounts 
included in the calculation of the derivatives RSF amount pursuant to 
Sec.  __.107(b)) and the undrawn amounts of a [BANK]'s credit and 
liquidity facilities, in each case multiplied by the RSF factors 
applicable in Sec.  __.106; and
    (b) The [BANK]'s derivatives RSF amount calculated pursuant to 
Sec.  __.107(b).


Sec.  __.106  RSF Factors.

    (a) Unencumbered assets and commitments. All assets and undrawn 
amounts under credit and liquidity facilities, unless otherwise 
provided in Sec.  __.107(b) relating to derivative transactions or 
paragraphs (b) through (d) of this section, are assigned RSF factors as 
follows:
    (1) Unencumbered assets assigned a zero percent RSF factor. An 
asset of a [BANK] is assigned a zero percent RSF factor if it is one of 
the following:
    (i) Currency and coin;
    (ii) A cash item in the process of collection;
    (iii) A Reserve Bank balance or other claim on a Reserve Bank that 
matures less than six months from the calculation date;
    (iv) A claim on a foreign central bank that matures less than six 
months from the calculation date; or
    (v) A trade date receivable due to the [BANK] resulting from the 
[BANK]'s sale of a financial instrument, foreign currency, or commodity 
that is required to settle within the lesser of the market standard 
settlement period, without extension, for the particular transaction 
and five business days from the date of the sale, and that has not 
failed to settle within the required settlement period.
    (2) Unencumbered assets and commitments assigned a 5 percent RSF 
factor. An asset or undrawn amount under a credit or liquidity facility 
of a [BANK] is assigned a 5 percent RSF factor if it is one of the 
following:
    (i) A level 1 liquid asset, other than a level 1 liquid asset 
described in paragraph (a)(1) of this section; or
    (ii) The undrawn amount of any committed credit facility or 
committed liquidity facility extended by the [BANK]. For the purposes 
of this paragraph (a)(2)(ii), the undrawn amount of a committed credit 
facility or committed liquidity facility is the entire unused amount of 
the facility that could be drawn upon within one year of the 
calculation date under the governing agreement.
    (3) Unencumbered assets assigned a 10 percent RSF factor. An asset 
of a [BANK] is assigned a 10 percent RSF factor if it is a secured 
lending transaction with the following characteristics:
    (i) The secured lending transaction matures less than six months 
from the calculation date;
    (ii) The secured lending transaction is secured by level 1 liquid 
assets;
    (iii) The borrower is a financial sector entity or a consolidated 
subsidiary thereof; and
    (iv) The [BANK] retains the right to rehypothecate the collateral 
provided by the counterparty for the duration of the secured lending 
transaction.
    (4) Unencumbered assets assigned a 15 percent RSF factor. An asset 
of a [BANK] is assigned a 15 percent RSF factor if it is one of the 
following:
    (i) A level 2A liquid asset; or
    (ii) A secured lending transaction or unsecured wholesale lending 
with the following characteristics:
    (A) The asset matures less than six months from the calculation 
date;
    (B) The borrower is a financial sector entity or a consolidated 
subsidiary thereof; and
    (C) The asset is not described in paragraph (a)(3) of this section 
and is not an operational deposit described in paragraph (a)(5)(iii) of 
this section.
    (5) Unencumbered assets assigned a 50 percent RSF factor. An asset 
of a [BANK] is assigned a 50 percent RSF factor if it is one of the 
following:
    (i) A level 2B liquid asset;
    (ii) A secured lending transaction or unsecured wholesale lending 
with the following characteristics:
    (A) The asset matures six months or more, but less than one year, 
from the calculation date;
    (B) The borrower is a financial sector entity, a consolidated 
subsidiary thereof, or a central bank; and
    (C) The asset is not an operational deposit described in paragraph 
(a)(5)(iii) of this section;
    (iii) An operational deposit placed by the [BANK] at a financial 
sector entity or a consolidated subsidiary thereof;
    (iv) A general obligation security issued by, or guaranteed as to 
the timely payment of principal and interest by, a public sector entity 
that is not described in paragraph (a)(5)(i); or
    (v) An asset that is not described in paragraphs (a)(1) through 
(a)(4) or (a)(5)(i) through (a)(5)(iv) of this section

[[Page 35168]]

that matures less than one year from the calculation date, including:
    (A) A secured lending transaction or unsecured wholesale lending 
where the borrower is a wholesale customer or counterparty that is not 
a financial sector entity, a consolidated subsidiary thereof, or a 
central bank; or
    (B) Lending to a retail customer or counterparty.
    (6) Unencumbered assets assigned a 65 percent RSF factor. An asset 
of a [BANK] is assigned a 65 percent RSF factor if it is one of the 
following:
    (i) A retail mortgage that matures one year or more from the 
calculation date and is assigned a risk weight of no greater than 50 
percent under subpart D of [AGENCY CAPITAL REGULATION]; or
    (ii) A secured lending transaction, unsecured wholesale lending, or 
lending to a retail customer or counterparty with the following 
characteristics:
    (A) The asset is not described in paragraphs (a)(1) through 
(a)(6)(i) of this section;
    (B) The borrower is not a financial sector entity or a consolidated 
subsidiary thereof;
    (C) The asset matures one year or more from the calculation date; 
and
    (D) The asset is assigned a risk weight of no greater than 20 
percent under subpart D of [AGENCY CAPITAL REGULATION].
    (7) Unencumbered assets assigned an 85 percent RSF factor. An asset 
of a [BANK] is assigned an 85 percent RSF factor if it is one of the 
following:
    (i) A retail mortgage that matures one year or more from the 
calculation date and is assigned a risk weight of greater than 50 
percent under subpart D of [AGENCY CAPITAL REGULATION]; or
    (ii) A secured lending transaction, unsecured wholesale lending, or 
lending to a retail customer or counterparty with the following 
characteristics:
    (A) The asset is not described in paragraphs (a)(1) through 
(a)(7)(i) of this section;
    (B) The borrower is not a financial sector entity or a consolidated 
subsidiary thereof;
    (C) The asset matures one year or more from the calculation date; 
and
    (D) The asset is assigned a risk weight of greater than 20 percent 
under subpart D of [AGENCY CAPITAL REGULATION];
    (iii) A publicly traded common equity share that is not HQLA;
    (iv) A security, other than a common equity share, that matures one 
year or more from the calculation date and is not HQLA; and
    (v) A commodity for which derivative transactions are traded on a 
U.S. board of trade or trading facility designated as a contract market 
under sections 5 and 6 of the Commodity Exchange Act (7 U.S.C. 7 and 8) 
or on a U.S. swap execution facility registered under section 5h of the 
Commodity Exchange Act (7 U.S.C. 7b-3).
    (8) Unencumbered assets assigned a 100 percent RSF factor. An asset 
of a [BANK] is assigned a 100 percent RSF factor if it is not described 
in paragraphs (a)(1) through (a)(7) of this section, including a 
secured lending transaction or unsecured wholesale lending where the 
borrower is a financial sector entity or a consolidated subsidiary 
thereof and that matures one year or more from the calculation date.
    (b) Nonperforming assets. An RSF factor of 100 percent is assigned 
to any asset that is past due by more than 90 days or nonaccrual.
    (c) Encumbered assets. An encumbered asset, unless otherwise 
provided in Sec.  __.107(b) relating to derivative transactions, is 
assigned an RSF factor as follows:
    (1)(i) Encumbered assets with less than six months remaining in the 
encumbrance period. For an encumbered asset with less than six months 
remaining in the encumbrance period, the same RSF factor is assigned to 
the asset as would be assigned if the asset were not encumbered.
    (ii) Encumbered assets with six months or more, but less than one 
year, remaining in the encumbrance period. For an encumbered asset with 
six months or more, but less than one year, remaining in the 
encumbrance period:
    (A) If the asset would be assigned an RSF factor of 50 percent or 
less under paragraphs (a)(1) through (a)(5) of this section if the 
asset were not encumbered, an RSF factor of 50 percent is assigned to 
the asset.
    (B) If the asset would be assigned an RSF factor of greater than 50 
percent under paragraphs (a)(6) through (a)(8) of this section if the 
asset were not encumbered, the same RSF factor is assigned to the asset 
as would be assigned if it were not encumbered.
    (iii) Encumbered assets with one year or more remaining in the 
encumbrance period. For an encumbered asset with one year or more 
remaining in the encumbrance period, an RSF factor of 100 percent is 
assigned to the asset.
    (2) If an asset is encumbered for an encumbrance period longer than 
the asset's maturity, the asset is assigned an RSF factor under 
paragraph (c)(1) of this section based on the length of the encumbrance 
period.
    (3) Segregated account assets. An asset held in a segregated 
account maintained pursuant to statutory or regulatory requirements for 
the protection of customer assets is not considered encumbered for 
purposes of this paragraph solely because such asset is held in the 
segregated account.
    (d) Off-balance sheet rehypothecated assets. For an NSFR liability 
of a [BANK] that is secured by an off-balance sheet asset or results 
from the [BANK] selling an off-balance sheet asset (for instance, in 
the case of a short sale):
    (1) If the [BANK] received the off-balance sheet asset under a 
lending transaction, an RSF factor is assigned to the lending 
transaction as if it were encumbered for the longer of (A) the 
remaining maturity of the NSFR liability and (B) any other encumbrance 
period applicable to the lending transaction;
    (2) If the [BANK] received the off-balance asset under an asset 
exchange, an RSF factor is assigned to the asset provided by the [BANK] 
in the asset exchange as if the provided asset were encumbered for the 
longer of (A) the remaining maturity of the NSFR liability and (B) any 
other encumbrance period applicable to the provided asset; or
    (3) If the [BANK] did not receive the off-balance sheet asset under 
a lending transaction or asset exchange, the off-balance sheet asset is 
assigned an RSF factor as if it were included on the balance sheet of 
the [BANK] and encumbered for the longer of (A) the remaining maturity 
of the NSFR liability and (B) any other encumbrance period applicable 
to the off-balance sheet asset.


Sec.  __.107  Calculation of NSFR derivatives amounts.

    (a) General requirement. A [BANK] must calculate its derivatives 
RSF amount and certain components of its ASF amount relating to the 
[BANK]'s derivative transactions (which includes cleared derivative 
transactions of a customer with respect to which the [BANK] is acting 
as agent for the customer that are included on the [BANK]'s balance 
sheet under GAAP) in accordance with this section.
    (b) Calculation of required stable funding amount relating to 
derivative transactions. A [BANK]'s derivatives RSF amount equals the 
sum of:
    (1) Current derivative transaction values. The [BANK]'s NSFR 
derivatives asset amount, as calculated under paragraph (d)(1) of this 
section, multiplied by an RSF factor of 100 percent;
    (2) Variation margin provided. The carrying value of variation 
margin provided by the [BANK] under each derivative transaction not 
subject to a

[[Page 35169]]

qualifying master netting agreement and each QMNA netting set, to the 
extent the variation margin reduces the [BANK]'s derivatives liability 
value under the derivative transaction or QMNA netting set, as 
calculated under paragraph (f)(2) of this section, multiplied by an RSF 
factor of zero percent;
    (3) Excess variation margin provided. The carrying value of 
variation margin provided by the [BANK] under each derivative 
transaction not subject to a qualifying master netting agreement and 
each QMNA netting set in excess of the amount described in section 
(b)(2) for each derivative transaction or QMNA netting set, multiplied 
by the RSF factor assigned to each asset comprising the variation 
margin pursuant to Sec.  __.106;
    (4) Variation margin received. The carrying value of variation 
margin received by the [BANK], multiplied by the RSF factor assigned to 
each asset comprising the variation margin pursuant to Sec.  __.106;
    (5) Potential valuation changes.
    (i) An amount equal to 20 percent of the sum of the gross 
derivative values of the [BANK] that are liabilities, as calculated 
under paragraph (ii), for each of the [BANK]'s derivative transactions 
not subject to a qualifying master netting agreement and each of its 
QMNA netting sets, multiplied by an RSF factor of 100 percent;
    (ii) For purposes of paragraph (i), the gross derivative value of a 
derivative transaction not subject to a qualifying master netting 
agreement or of a QMNA netting set is equal to the value to the [BANK], 
calculated as if no variation margin had been exchanged and no 
settlement payments had been made based on changes in the value of the 
derivative transaction or QMNA netting set.
    (6) Contributions to central counterparty mutualized loss sharing 
arrangements. The fair value of a [BANK]'s contribution to a central 
counterparty's mutualized loss sharing arrangement (regardless of 
whether the contribution is included on the [BANK]'s balance sheet), 
multiplied by an RSF factor of 85 percent; and
    (7) Initial margin provided. The fair value of initial margin 
provided by the [BANK] for derivative transactions (regardless of 
whether the initial margin is included on the [BANK]'s balance sheet), 
which does not include initial margin provided by the [BANK] for 
cleared derivative transactions with respect to which the [BANK] is 
acting as agent for a customer and the [BANK] does not guarantee the 
obligations of the customer's counterparty to the customer under the 
derivative transaction (such initial margin would be assigned an RSF 
factor pursuant to Sec.  __.106 to the extent the initial margin is 
included on the [BANK]'s balance sheet), multiplied by an RSF factor 
equal to the higher of 85 percent or the RSF factor assigned to each 
asset comprising the initial margin pursuant to Sec.  __.106.
    (c) Calculation of available stable funding amount relating to 
derivative transactions. The following amounts of a [BANK] are assigned 
a zero percent ASF factor:
    (1) The [BANK]'s NSFR derivatives liability amount, as calculated 
under paragraph (d)(2) of this section; and
    (2) The carrying value of NSFR liabilities in the form of an 
obligation to return initial margin or variation margin received by the 
[BANK].
    (d) Calculation of NSFR derivatives asset or liability amount.
    (1) A [BANK]'s NSFR derivatives asset amount is the greater of:
    (i) Zero; and
    (ii) The [BANK]'s total derivatives asset amount, as calculated 
under paragraph (e)(1) of this section, less the [BANK]'s total 
derivatives liability amount, as calculated under paragraph (e)(2) of 
this section.
    (2) A [BANK]'s NSFR derivatives liability amount is the greater of:
    (i) Zero; and
    (ii) The [BANK]'s total derivatives liability amount, as calculated 
under paragraph (e)(2) of this section, less the [BANK]'s total 
derivatives asset amount, as calculated under paragraph (e)(1) of this 
section.
    (e) Calculation of total derivatives asset and liability amounts.
    (1) A [BANK]'s total derivatives asset amount is the sum of the 
[BANK]'s derivatives asset values, as calculated under paragraph (f)(1) 
of this section, for each derivative transaction not subject to a 
qualifying master netting agreement and each QMNA netting set.
    (2) A [BANK]'s total derivatives liability amount is the sum of the 
[BANK]'s derivatives liability values, as calculated under paragraph 
(f)(2) of this section, for each derivative transaction not subject to 
a qualifying master netting agreement and each QMNA netting set.
    (f) Calculation of derivatives asset and liability values. For each 
derivative transaction not subject to a qualifying master netting 
agreement and each QMNA netting set:
    (1) The derivatives asset value is equal to the asset value to the 
[BANK], after taking into account any variation margin received by the 
[BANK] that meets the conditions of [Sec.  __.10(c)(4)(ii)(C)(1) 
through (7) of the AGENCY SUPPLEMENTARY LEVERAGE RATIO RULE]; or
    (2) The derivatives liability value is equal to the liability value 
to the [BANK], after taking into account any variation margin provided 
by the [BANK].


Sec.  __.108  Rules for consolidation.

    (a) Consolidated subsidiary available stable funding amount. For 
available stable funding of a legal entity that is a consolidated 
subsidiary of a [BANK], including a consolidated subsidiary organized 
under the laws of a foreign jurisdiction, the [BANK] may include the 
available stable funding of the consolidated subsidiary in its ASF 
amount up to:
    (1) The RSF amount of the consolidated subsidiary, as calculated by 
the [BANK] for the [BANK]'s net stable funding ratio under this part; 
plus
    (2) Any amount in excess of the RSF amount of the consolidated 
subsidiary, as calculated by the [BANK] for the [BANK]'s net stable 
funding ratio under this part, to the extent the consolidated 
subsidiary may transfer assets to the top-tier [BANK], taking into 
account statutory, regulatory, contractual, or supervisory 
restrictions, such as sections 23A and 23B of the Federal Reserve Act 
(12 U.S.C. 371c and 12 U.S.C. 371c-1) and Regulation W (12 CFR part 
223).
    (b) Required consolidation procedures. To the extent a [BANK] 
includes an ASF amount in excess of the RSF amount of the consolidated 
subsidiary, the [BANK] must implement and maintain written procedures 
to identify and monitor applicable statutory, regulatory, contractual, 
supervisory, or other restrictions on transferring assets from any of 
its consolidated subsidiaries. These procedures must document which 
types of transactions the [BANK] could use to transfer assets from a 
consolidated subsidiary to the [BANK] and how these types of 
transactions comply with applicable statutory, regulatory, contractual, 
supervisory, or other restrictions.

Subpart L--Net Stable Funding Shortfall


Sec.  __.110  NSFR shortfall: supervisory framework.

    (a) Notification requirements. A [BANK] must notify the [AGENCY] no 
later than 10 business days, or such other period as the [AGENCY] may 
otherwise require by written notice, following the date that any event 
has occurred that would cause or has caused the [BANK]'s net stable 
funding ratio to

[[Page 35170]]

be less than 1.0 as required under Sec.  __.100.
    (b) Liquidity Plan. (1) A [BANK] must within 10 business days, or 
such other period as the [AGENCY] may otherwise require by written 
notice, provide to the [AGENCY] a plan for achieving a net stable 
funding ratio equal to or greater than 1.0 as required under Sec.  
__.100 if:
    (i) The [BANK] has or should have provided notice, pursuant to 
Sec.  __.110(a), that the [BANK]'s net stable funding ratio is, or will 
become, less than 1.0 as required under Sec.  __.100;
    (ii) The [BANK]'s reports or disclosures to the [AGENCY] indicate 
that the [BANK]'s net stable funding ratio is less than 1.0 as required 
under Sec.  __.100; or
    (iii) The [AGENCY] notifies the [BANK] in writing that a plan is 
required and provides a reason for requiring such a plan.
    (2) The plan must include, as applicable:
    (i) An assessment of the [BANK]'s liquidity profile;
    (ii) The actions the [BANK] has taken and will take to achieve a 
net stable funding ratio equal to or greater than 1.0 as required under 
Sec.  __.100, including:
    (A) A plan for adjusting the [BANK]'s liquidity profile;
    (B) A plan for remediating any operational or management issues 
that contributed to noncompliance with subpart K of this part; and
    (iii) An estimated time frame for achieving full compliance with 
Sec.  __.100.
    (3) The [BANK] must report to the [AGENCY] at least monthly, or 
such other frequency as required by the [AGENCY], on progress to 
achieve full compliance with Sec.  __. 100.
    (c) Supervisory and enforcement actions. The [AGENCY] may, at its 
discretion, take additional supervisory or enforcement actions to 
address noncompliance with the minimum net stable funding ratio and 
other requirements of subparts K through N of this part (see also Sec.  
__.2(c)).

Subpart M--Reserved

Subpart N--NSFR Public Disclosure


Sec.  __.130  Timing, method, and retention of disclosures.

    (a) Applicability. A covered depository institution holding company 
that is subject to the minimum stable funding requirement in Sec.  
__.100 of this part must publicly disclose the information required 
under this subpart.
    (b) Timing of disclosure. A covered depository institution holding 
company must provide timely public disclosures each calendar quarter of 
all of the information required under this subpart, beginning when the 
covered depository institution holding company is first required to 
comply with the requirements of this part pursuant to Sec.  __.100 and 
continuing thereafter.
    (c) Disclosure method. A covered depository institution holding 
company must publicly disclose, in a direct and prominent manner, the 
information required under this subpart on its public internet site or 
in its public financial or other public regulatory reports.
    (d) Availability. The disclosures provided under this subpart must 
remain publicly available for at least five years after the date of 
disclosure.


Sec.  __.131  Disclosure requirements.

    (a) General. A covered depository institution holding company must 
publicly disclose the information required by this subpart in the 
format provided in Table 1 below.
    (b) Calculation of disclosed amounts.
    (1) General.
    (i) A covered depository institution holding company must calculate 
its disclosed amounts:
    (A) On a consolidated basis and presented in millions of U.S. 
dollars or as a decimal, as applicable; and
    (B) As of the last business day of each calendar quarter.
    (ii) A covered depository institution holding company must include 
the as-of date for the disclosed amounts.
    (2) Calculation of unweighted amounts.
    (i) For each component of a covered depository institution holding 
company's ASF amount calculation, other than the NSFR derivatives 
liability amount and total derivatives liability amount, the 
``unweighted amount'' means the sum of the carrying values of the 
covered depository institution holding company's NSFR regulatory 
capital elements and NSFR liabilities, as applicable, determined before 
applying the appropriate ASF factors, and subdivided into the following 
maturity categories, as applicable: Open maturity; less than six months 
after the calculation date; six months or more, but less than one year, 
after the calculation date; one year or more after the calculation 
date; and perpetual.
    (ii) For each component of a covered depository institution holding 
company's RSF amount calculation, other than amounts included in 
paragraphs (c)(2)(xvi) through (xix) of this section, the ``unweighted 
amount'' means the sum of the carrying values of the covered depository 
institution holding company's assets and undrawn amounts of committed 
credit facilities and committed liquidity facilities extended by the 
covered depository institution holding company, as applicable, 
determined before applying the appropriate RSF factors, and subdivided 
by maturity into the following maturity categories, as applicable: Open 
maturity; less than six months after the calculation date; six months 
or more, but less than one year, after the calculation date; one year 
or more after the calculation date; and perpetual.
    (3) Calculation of weighted amounts.
    (i) For each component of a covered depository institution holding 
company's ASF amount calculation, other than the NSFR derivatives 
liability amount and total derivatives liability amount, the ``weighted 
amount'' means the sum of the carrying values of the covered depository 
institution holding company's NSFR regulatory capital elements and NSFR 
liabilities, as applicable, multiplied by the appropriate ASF factors.
    (ii) For each component of a covered depository institution holding 
company's RSF amount calculation, other than amounts included in 
paragraphs (c)(2)(xvi) through (xix) of this section, the ``weighted 
amount'' means the sum of the carrying values of the covered depository 
institution holding company's assets and undrawn amounts of committed 
credit facilities and committed liquidity facilities extended by the 
covered depository institution holding company, multiplied by the 
appropriate RSF factors.
BILLING CODE P

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[GRAPHIC] [TIFF OMITTED] TP01JN16.013

BILLING CODE C
    (c) Quantitative disclosures. A covered depository institution 
holding company must disclose all of the information required under 
Table 1 to Sec.  __.131(a)--Disclosure Template, including:
    (1) Disclosures of ASF amount calculations:
    (i) The sum of the weighted amounts and, for each applicable 
maturity category, the sum of the unweighted amounts of paragraphs 
(c)(1)(ii) and (iii) of this section (row 1);
    (ii) The weighted amount and, for each applicable maturity 
category, the unweighted amount of NSFR regulatory capital elements 
described in Sec.  __104(a)(1) (row 2);
    (iii) The weighted amount and, for each applicable maturity 
category, the unweighted amount of securities described in Sec. Sec.  
__.104(a)(2), __.104(d)(5), and __.104(e)(4) (row 3);
    (iv) The sum of the weighted amounts and, for each applicable 
maturity category, the sum of the unweighted amounts of paragraphs 
(c)(1)(v) through (viii) of this section (row 4);
    (v) The weighted amount and, for each applicable maturity category, 
the unweighted amount of stable retail deposits held at the covered 
depository institution holding company described in Sec.  __.104(b) 
(row 5);
    (vi) The weighted amount and, for each applicable maturity 
category, the unweighted amount of retail deposits other than stable 
retail deposits or brokered deposits, described in Sec.  __.104(c)(1) 
(row 6);
    (vii) The weighted amount and, for each applicable maturity 
category, the unweighted amount of brokered deposits provided by a 
retail customer or counterparty described in Sec. Sec.  __.104(c)(2), 
__.104(c)(3), __.104(c)(4), __.104(d)(7), and __.104(e)(2) (row 7);
    (viii) The weighted amount and, for each applicable maturity 
category, the unweighted amount of other funding provided by a retail 
customer or counterparty described in Sec.  __.104(e)(3) (row 8);
    (ix) The sum of the weighted amounts and, for each applicable 
maturity category, the sum of the unweighted amounts of paragraphs 
(c)(1)(x) and (xi) of this section (row 9);
    (x) The weighted amount and, for each applicable maturity category, 
the unweighted amount of operational deposits placed at the covered 
depository institution holding company described in Sec.  __.104(d)(6) 
(row 10);
    (xi) The weighted amount and, for each applicable maturity 
category, the unweighted amount of other wholesale funding described in 
Sec. Sec.  __.104(a)(2), __.104(d)(1), __.104(d)(2), __.104(d)(3), 
__.104(d)(4), __.104(d)(8), and __.104(e)(5) (row 11);
    (xii) In the ``unweighted'' cell, the NSFR derivatives liability 
amount described in Sec.  __.107(d)(2) (row 12);
    (xiii) In the ``unweighted'' cell, the total derivatives liability 
amount described in Sec.  __.107(e)(2) (row 13);
    (xiv) The weighted amount and, for each applicable maturity 
category, the unweighted amount of all other liabilities not included 
in amounts disclosed under paragraphs (c)(1)(i) through (xiii) of this 
section (row 14);
    (xv) The ASF amount described in Sec.  __.103 (row 15);
    (2) Disclosures of RSF amount calculations, including to reflect 
any encumbrances under Sec. Sec.  __.106(c) and __.106(d):
    (i) The sum of the weighted amounts and the sum of the unweighted 
amounts of paragraphs (c)(2)(ii) through (iv) of this section (row 16);
    (ii) The weighted amount and, for each applicable maturity 
category, the unweighted amount of level 1 liquid assets described in 
Sec. Sec.  __.106(a)(1) and __.106(a)(2)(i) (row 17);
    (iii) The weighted amount and, for each applicable maturity 
category, the unweighted amount of level 2A liquid assets described in 
Sec.  __.106(a)(4)(i) (row 18);
    (iv) The weighted amount and, for each applicable maturity 
category, the unweighted amount of level 2B liquid assets described in 
Sec.  __.106(a)(5)(i) (row 19);
    (v) The weighted amount and, for each applicable maturity category, 
the unweighted amount of assets described in Sec.  __.106(a)(1), other 
than level 1 liquid assets included in amounts disclosed under 
paragraph (c)(2)(ii) of this section (row 20);
    (vi) The weighted amount and, for each applicable maturity 
category, the unweighted amount of operational

[[Page 35174]]

deposits placed at financial sector entities or consolidated 
subsidiaries thereof described in Sec.  __.106(a)(5)(iii) (row 21);
    (vii) The sum of the weighted amounts and, for each applicable 
maturity category, the sum of the unweighted amounts of paragraphs 
(c)(2)(viii), (ix), (x), (xii), and (xiv) of this section (row 22);
    (viii) The weighted amount and, for each applicable maturity 
category, the unweighted amount of secured lending transactions where 
the borrower is a financial sector entity or a consolidated subsidiary 
of a financial sector entity and the secured lending transaction is 
secured by level 1 liquid assets, described in Sec. Sec.  __.106(a)(3), 
__.106(a)(4)(ii), __.106(a)(5)(ii), and __.106(a)(8) (row 23);
    (ix) The weighted amount and, for each applicable maturity 
category, the unweighted amount of secured lending transactions that 
are secured by assets other than level 1 liquid assets and unsecured 
wholesale lending, in each case where the borrower is a financial 
sector entity or a consolidated subsidiary of a financial sector 
entity, described in Sec. Sec.  __.106(a)(4)(ii), __.106(a)(5)(ii), and 
__.106(a)(8) (row 24);
    (x) The weighted amount and, for each applicable maturity category, 
the unweighted amount of secured lending transactions and unsecured 
wholesale lending to wholesale customers or counterparties that are not 
financial sector entities or consolidated subsidiaries thereof, and 
lending to retail customers and counterparties other than retail 
mortgages, described in Sec. Sec.  __.106(a)(5)(ii), __.106(a)(5)(v), 
__.106(a)(6)(ii), and __.106(a)(7)(ii) (row 25);
    (xi) The weighted amount and, for each applicable maturity 
category, the unweighted amount of secured lending transactions, 
unsecured wholesale lending, and lending to retail customers or 
counterparties that are assigned a risk weight of no greater than 20 
percent under subpart D of [AGENCY CAPITAL REGULATION] described in 
Sec. Sec.  __.106(a)(5)(ii), __.106(a)(5)(v), and __.106(a)(6)(ii) (row 
26);
    (xii) The weighted amount and, for each applicable maturity 
category, the unweighted amount of retail mortgages described in 
Sec. Sec.  __.106(a)(5)(v), __.106(a)(6)(i), and __.106(a)(7)(i) (row 
27);
    (xiii) The weighted amount and, for each applicable maturity 
category, the unweighted amount of retail mortgages assigned a risk 
weight of no greater than 50 percent under subpart D of [AGENCY CAPITAL 
REGULATION] described in Sec. Sec.  __.106(a)(5)(v) and __.106(a)(6)(i) 
(row 28);
    (xiv) The weighted amount and, for each applicable maturity 
category, the unweighted amount of publicly traded common equity shares 
and other securities that are not HQLA and are not nonperforming assets 
described in Sec. Sec.  __.106(a)(5)(iv), __.106(a)(7)(iii), and 
__.106(a)(7)(iv) (row 29);
    (xv) The weighted amount and unweighted amount of commodities 
described in Sec. Sec.  __.106(a)(7)(v) and __.106(a)(8) (row 30);
    (xvi) The unweighted amount and weighted amount of the sum of (A) 
assets contributed by the covered depository institution holding 
company to a central counterparty's mutualized loss-sharing arrangement 
described in Sec.  __.107(b)(6) (in which case the ``unweighted 
amount'' shall equal the fair value and the ``weighted amount'' shall 
equal the unweighted amount multiplied by 85 percent) and (B) assets 
provided as initial margin by the covered depository institution 
holding company for derivative transactions described in Sec.  
__.107(b)(7) (in which case the ``unweighted amount'' shall equal the 
fair value and the ``weighted amount'' shall equal the unweighted 
amount multiplied by the higher of 85 percent or the RSF factor 
assigned to the asset pursuant to Sec.  __.106) (row 31);
    (xvii) In the ``unweighted'' cell, the covered depository 
institution holding company's NSFR derivatives asset amount under Sec.  
__.107(d)(1) and in the ``weighted'' cell, the covered depository 
institution holding company's NSFR derivatives asset amount multiplied 
by 100 percent (row 32);
    (xviii) In the ``unweighted'' cell, the covered depository 
institution holding company's total derivatives asset amount described 
in Sec.  __.107(e)(1) (row 33);
    (xix) (A) In the ``unweighted'' cell, the sum of the gross 
derivative liability values of the covered depository institution 
holding company that are liabilities for each of its derivative 
transactions not subject to a qualifying master netting agreement and 
each of its QMNA netting sets, described in Sec.  __.107(b)(5) and (B) 
in the ``weighted'' cell, such sum multiplied by 20 percent, as 
described in Sec.  __.107(b)(5) (row 34);
    (xx) The weighted amount and, for each applicable maturity 
category, the unweighted amount of all other asset amounts not included 
in amounts disclosed under paragraphs (c)(2)(i) through (xix) of this 
section, including nonperforming assets (row 35);
    (xxi) The weighted and unweighted amount of undrawn credit and 
liquidity facilities described in Sec.  __.106(a)(2)(ii) (row 36);
    (xxii) The RSF amount described in Sec.  __.105 (row 37);
    (3) The net stable funding ratio under Sec.  __.100(b) (row 38);
    (d) Qualitative disclosures.
    (1) A covered depository institution holding company must provide a 
sufficient qualitative discussion to facilitate an understanding of the 
covered depository institution holding company's net stable funding 
ratio and its components.
    (2) For purposes of paragraph (d)(1) of this section, a covered 
depository institution holding company's qualitative discussion may 
include, but need not be limited to, the following items, to the extent 
they are significant to the covered depository institution holding 
company's net stable funding ratio and facilitate an understanding of 
the data provided:
    (i) The main drivers of the net stable funding ratio;
    (ii) Changes in the net stable funding ratio results over time and 
the causes of such changes (for example, changes in strategies and 
circumstances);
    (iii) Concentrations of funding sources and changes in funding 
structure;
    (iv) Concentrations of available and required stable funding within 
a covered company's corporate structure (for example, across legal 
entities); or
    (iv) Other sources of funding or other factors in the net stable 
funding ratio calculation that the covered depository institution 
holding company considers to be relevant to facilitate an understanding 
of its liquidity profile.
    [End of Proposed Common Rule Text]

List of Subjects

12 CFR Part 50

    Administrative practice and procedure; Banks, banking; Liquidity; 
Reporting and recordkeeping requirements; Savings associations.

12 CFR Part 249

    Administrative practice and procedure; Banks, banking; Federal 
Reserve System; Holding companies; Liquidity; Reporting and 
recordkeeping requirements.

12 CFR Part 329

    Administrative practice and procedure; Banks, banking; Federal 
Deposit Insurance Corporation, FDIC; Liquidity; Reporting and 
recordkeeping requirements; Savings associations.

[[Page 35175]]

Adoption of the Common Rule Text

    The proposed adoption of the common rules by the agencies, as 
modified by agency-specific text, is set forth below:

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons set forth in the common preamble, the OCC proposes 
to amend part 50 of chapter I of title 12 to add the text of the common 
rule as set forth at the end of the SUPPLEMENTARY INFORMATION section 
and is further amended as follows:

PART 50--LIQUIDITY RISK MEASUREMENT STANDARDS

0
1. The authority citation for part 50 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq., 93a, 481, 1818, and 1462 et 
seq.

0
2. Amend Sec.  50.1 by:
0
a. Revising paragraph (a) and (b)(1);
0
b. Redesignating paragraphs (b)(3) through (5) as paragraphs (b)(4) 
through (6) respectively and adding new paragraph (b)(3);
    The additions and revisions read as follows:


Sec.  50.1  Purpose and applicability.

    (a) Purpose. This part establishes a minimum liquidity standard and 
a minimum stable funding standard for certain national banks and 
Federal savings associations on a consolidated basis, as set forth 
herein.
    (b) Applicability. (1) A national bank or Federal savings 
association is subject to the minimum liquidity standard and the 
minimum stable funding standard, and other requirements of this part 
if:
    (i) The national bank or Federal savings association has total 
consolidated assets equal to $250 billion or more, as reported on the 
most recent year-end Consolidated Report of Condition and Income;
    (ii) The national bank or Federal savings association has total 
consolidated on-balance sheet foreign exposure at the most recent year 
end equal to $10 billion or more (where total on-balance sheet foreign 
exposure equals total cross-border claims less claims with a head 
office or guarantor located in another country plus redistributed 
guaranteed amounts to the country of the head office or guarantor plus 
local country claims on local residents plus revaluation gains on 
foreign exchange and derivative products, calculated in accordance with 
the Federal Financial Institutions Examination Council (FFIEC) 009 
Country Exposure Report);
    (iii) The national bank or Federal savings association is a 
depository institution that has total consolidated assets equal to $10 
billion or more, as reported on the most recent year-end Consolidated 
Report of Condition and Income and is a consolidated subsidiary of one 
of the following:
    (A) A covered depository institution holding company that has total 
assets equal to $250 billion or more, as reported on the most recent 
year-end Consolidated Financial Statements for Holding Companies 
reporting form (FR Y-9C), or, if the covered depository institution 
holding company is not required to report on the FR Y-9C, its estimated 
total consolidated assets as of the most recent year-end, calculated in 
accordance with the instructions to the FR Y-9C;
    (B) A depository institution that has total consolidated assets 
equal to $250 billion or more, as reported on the most recent year-end 
Consolidated Report of Condition and Income;
    (C) A covered depository institution holding company or depository 
institution that has total consolidated on-balance sheet foreign 
exposure at the most recent year-end equal to $10 billion or more 
(where total on-balance sheet foreign exposure equals total cross-
border claims less claims with a head office or guarantor located in 
another country plus redistributed guaranteed amounts to the country of 
the head office or guarantor plus local country claims on local 
residents plus revaluation gains on foreign exchange and derivative 
transaction products, calculated in accordance with Federal Financial 
Institutions Examination Council (FFIEC) 009 Country Exposure Report); 
or
    (D) A covered nonbank company; or
    (iv) The OCC has determined that application of this part is 
appropriate in light of the national bank's or Federal savings 
association's asset size, level of complexity, risk profile, scope of 
operations, affiliation with foreign or domestic covered entities, or 
risk to the financial system.
* * * * *
    (3)(i) A national bank or Federal savings association that becomes 
subject to the minimum stable funding standard and other requirements 
of subparts K through N of this part under paragraphs (b)(1)(i) through 
(iii) of this section after the effective date must comply with the 
requirements of subparts K through N of this part beginning on April 1 
of the year in which the national bank or Federal savings association 
becomes subject to the minimum stable funding standard and the 
requirements of subparts K through N of this part; and
    (ii) A national bank or Federal savings association that becomes 
subject to the minimum stable funding standard and other requirements 
of subparts K through N of this part under paragraph (b)(1)(iv) of this 
section after the effective date must comply with the requirements of 
subparts K through N of this part on the date specified by the OCC.
* * * * *
0
3. Amend Sec.  50.2, by redesignating paragraph (b) as paragraph (c), 
adding new paragraph (b), and revising newly-redesignated paragraph (c) 
to read as follows:


Sec.  50.2  Reservation of authority.

* * * * *
    (b) The OCC may require a national bank or Federal savings 
association to hold an amount of available stable funding (ASF) greater 
than otherwise required under this part, or to take any other measure 
to improve the national bank's or Federal savings association's stable 
funding, if the OCC determines that the national bank's or Federal 
savings association's stable funding requirements as calculated under 
this part are not commensurate with the national bank's or Federal 
savings association's funding risks. In making determinations under 
this section, the OCC will apply notice and response procedures as set 
forth in 12 CFR 3.404.
    (c) Nothing in this part limits the authority of the OCC under any 
other provision of law or regulation to take supervisory or enforcement 
action, including action to address unsafe or unsound practices or 
conditions, deficient liquidity levels, deficient stable funding 
levels, or violations of law.
0
4. Amend Sec.  50.3 by:
0
a. Revising the definition for ``Calculation date'';
0
b. Adding the definition ``Carrying value'';
0
c. Revising the definitions for ``Collateralized deposit'', 
``Committed'' and ``Covered nonbank company'';
0
d. Adding the definitions for ``Encumbered'', ``NSFR liability'' and 
``NSFR regulatory capital element'';
0
e. Revising the definition for ``Operational Deposit'';
0
f. Adding the definition for ``QMNA netting set'';
0
g. Revising the definitions for:Secured funding transaction'' and 
``Secured lending transaction'';

[[Page 35176]]

0
h. Adding the definition for ``Unconditionally cancelable'';
0
i. Revising the definition for ``Unsecured wholesale funding''; and
0
j. Adding the definition for ``Unsecured wholesale lending''.
    The additions and revisions read as follows:


Sec.  50.3  Definitions.

* * * * *
    Calculation date means, for subparts B through J of this part, any 
date on which a national bank or Federal savings association calculates 
its liquidity coverage ratio under Sec.  50.10, and for subparts K 
through N of this part, any date on which a national bank or Federal 
savings association calculates its net stable funding ratio under Sec.  
50.100.
    Carrying value means, with respect to an asset, NSFR regulatory 
capital element, or NSFR liability, the value on the balance sheet of 
the national bank or Federal savings association, each as determined in 
accordance with GAAP.
* * * * *
    Collateralized deposit means:
    (1) A deposit of a public sector entity held at the national bank 
or Federal savings association that is required to be secured under 
applicable law by a lien on assets owned by the national bank or 
Federal savings association and that gives the depositor, as holder of 
the lien, priority over the assets in the event the national bank or 
Federal savings association enters into receivership, bankruptcy, 
insolvency, liquidation, resolution, or similar proceeding;
    (2) A deposit of a fiduciary account awaiting investment or 
distribution held at the national bank or Federal savings association 
for which the national bank or Federal savings association is a 
fiduciary and is required under 12 CFR 9.10(b) (national banks), 12 CFR 
150.300 through 150.320 (Federal savings associations), or applicable 
state law (state member and nonmember banks, and state savings 
associations) to set aside assets owned by the national bank or Federal 
savings association as security, which gives the depositor priority 
over the assets in the event the national bank or Federal savings 
association enters into receivership, bankruptcy, insolvency, 
liquidation, resolution, or similar proceeding; or
    (3) A deposit of a fiduciary account awaiting investment or 
distribution held at the national bank or Federal savings association 
for which the national bank's or Federal savings association's 
affiliated insured depository institution is a fiduciary and where the 
national bank or Federal savings association under 12 CFR 9.10(c) 
(national banks) or 12 CFR 150.310 (Federal savings associations) has 
set aside assets owned by the national bank or Federal savings 
association as security, which gives the depositor priority over the 
assets in the event the national bank or Federal savings association 
enters into receivership, bankruptcy, insolvency, liquidation, 
resolution, or similar proceeding.
    Committed means, with respect to a credit or liquidity facility, 
that under the terms of the facility, it is not unconditionally 
cancelable.
* * * * *
    Covered nonbank company means a designated company that the Board 
of Governors of the Federal Reserve System has required by separate 
rule or order to comply with the requirements of 12 CFR part 249.
* * * * *
    Encumbered means, with respect to an asset, that the asset:
    (1) Is subject to legal, regulatory, contractual, or other 
restriction on the ability of the national bank or Federal savings 
association to monetize the asset; or
    (2) Is pledged, explicitly or implicitly, to secure or to provide 
credit enhancement to any transaction, not including when the asset is 
pledged to a central bank or a U.S. government-sponsored enterprise 
where:
    (i) Potential credit secured by the asset is not currently extended 
to the national bank or Federal savings association or its consolidated 
subsidiaries; and
    (ii) The pledged asset is not required to support access to the 
payment services of a central bank.
* * * * *
    NSFR liability means any liability or equity reported on a national 
bank's or Federal savings association's balance sheet that is not an 
NSFR regulatory capital element.
    NSFR regulatory capital element means any capital element included 
in a national bank's or Federal savings association's common equity 
tier 1 capital, additional tier 1 capital, and tier 2 capital, in each 
case as defined in 12 CFR 3.20, prior to application of capital 
adjustments or deductions as set forth in 12 CFR 3.22, excluding any 
debt or equity instrument that does not meet the criteria for 
additional tier 1 or tier 2 capital instruments in 12 CFR 3.22 and is 
being phased out of tier 1 capital or tier 2 capital pursuant to 
subpart G of 12 CFR part 3.
    Operational deposit means short-term unsecured wholesale funding 
that is a deposit, unsecured wholesale lending that is a deposit, or a 
collateralized deposit, in each case that meets the requirements of 
Sec.  50.4(b) with respect to that deposit and is necessary for the 
provision of operational services as an independent third-party 
intermediary, agent, or administrator to the wholesale customer or 
counterparty providing the deposit.
* * * * *
    QMNA netting set means a group of derivative transactions with a 
single counterparty that is subject to a qualifying master netting 
agreement and is netted under the qualifying master netting agreement.
* * * * *
    Secured funding transaction means any funding transaction that is 
subject to a legally binding agreement that gives rise to a cash 
obligation of the national bank or Federal savings association to a 
wholesale customer or counterparty that is secured under applicable law 
by a lien on securities or loans provided by the national bank or 
Federal savings association, which gives the wholesale customer or 
counterparty, as holder of the lien, priority over the securities or 
loans in the event the national bank or Federal savings association 
enters into receivership, bankruptcy, insolvency, liquidation, 
resolution, or similar proceeding. Secured funding transactions include 
repurchase transactions, securities lending transactions, other secured 
loans, and borrowings from a Federal Reserve Bank. Secured funding 
transactions do not include securities.
    Secured lending transaction means any lending transaction that is 
subject to a legally binding agreement that gives rise to a cash 
obligation of a wholesale customer or counterparty to the national bank 
or Federal savings association that is secured under applicable law by 
a lien on securities or loans provided by the wholesale customer or 
counterparty, which gives the national bank or Federal savings 
association, as holder of the lien, priority over the securities or 
loans in the event the counterparty enters into receivership, 
bankruptcy, insolvency, liquidation, resolution, or similar proceeding. 
Secured lending transactions include reverse repurchase transactions 
and securities borrowing transactions. Secured lending transactions do 
not include securities.
* * * * *
    Unconditionally cancelable means, with respect to a credit or 
liquidity facility, that a national bank or Federal savings association 
may, at any time, with or without cause, refuse to extend credit under 
the facility (to the extent permitted under applicable law).

[[Page 35177]]

    Unsecured wholesale funding means a liability or general obligation 
of the national bank or Federal savings association to a wholesale 
customer or counterparty that is not a secured funding transaction. 
Unsecured wholesale funding includes wholesale deposits.
    Unsecured wholesale lending means a liability or general obligation 
of a wholesale customer or counterparty to the national bank or Federal 
savings association that is not a secured lending transaction or a 
security.
* * * * *
0
5. Amend Sec.  50.22, by revising paragraph (b)(1) to read as follows:


Sec.  50.22  Requirements for eligible high-quality liquid assets.

* * * * *
    (b) * * *
    (1) The assets are not encumbered.
* * * * *
0
6. Amend Sec.  50.30, by revising paragraph (b)(3) to read as follows:


Sec.  50.30  Total net cash outflow amount.

    (b) * * *
    (3) Other than the transactions identified in Sec.  50.32(h)(2), 
(h)(5), or (j) or Sec.  50.33(d) or (f), the maturity of which is 
determined under Sec.  50.31(a), transactions that have an open 
maturity are not included in the calculation of the maturity mismatch 
add-on.
0
7. Amend Sec.  50.31, by revising paragraphs (a)(1), (a)(2), and (a)(4) 
to read as follows:


Sec.  50.31  Determining maturity.

    (a) * * *
    (1) With respect to an instrument or transaction subject to Sec.  
50.32, on the earliest possible contractual maturity date or the 
earliest possible date the transaction could occur, taking into account 
any option that could accelerate the maturity date or the date of the 
transaction, except that when considering the earliest possible 
contractual maturity date or the earliest possible date the transaction 
could occur, the national bank or Federal savings association should 
exclude any contingent options that are triggered only by regulatory 
actions or changes in law or regulation, as follows:
* * * * *
    (2) With respect to an instrument or transaction subject to Sec.  
50.33, on the latest possible contractual maturity date or the latest 
possible date the transaction could occur, taking into account any 
option that could extend the maturity date or the date of the 
transaction, except that when considering the latest possible 
contractual maturity date or the latest possible date the transaction 
could occur, the national bank or Federal savings association may 
exclude any contingent options that are triggered only by regulatory 
actions or changes in law or regulation, as follows:
* * * * *
    (4) With respect to a transaction that has an open maturity, is not 
an operational deposit, and is subject to the provisions of Sec.  
50.32(h)(2), (h)(5), (j), or (k) or Sec.  50.33(d) or (f), the maturity 
date is the first calendar day after the calculation date. Any other 
transaction that has an open maturity and is subject to the provisions 
of Sec.  50.32 shall be considered to mature within 30 calendar days of 
the calculation date.
* * * * *

Subpart G [Added and Reserved]

0
8. Add and reserve subpart G.

Subparts H, I, J, K, L, M, and N [Added]

0
8a. Part 50 is amended by adding subparts H, I, J, K, L, M, and N as 
set forth at the end of the common preamble.

Subparts K and L [Amended]

0
9. Subparts K and L to part 50 are amended by:
0
a. Removing ``[AGENCY]'' and adding ``OCC'' in its place wherever it 
appears.
0
b. Removing ``[AGENCY CAPITAL REGULATION]'' and adding ``12 CFR part 
3'' in its place wherever it appears.
0
c. Removing ``[BANK]'' and adding ``national bank or Federal savings 
association'' in its place wherever it appears.
0
d. Removing ``[BANK]'s'' and adding ``national bank's or Federal 
savings association's'' in its place wherever it appears.
0
e. Removing ``[Sec.  __.10(c)(4)(ii)(C)(1) through (7) of the AGENCY 
SUPPLEMENTARY LEVERAGE RATIO RULE]'' and adding ``12 CFR 
3.10(c)(4)(ii)(C)(1) through (7)'' in its place wherever it appears.
0
f. Removing ``[Sec.  __.10(c)(4)(ii)(E)(1) through (3) of the AGENCY 
SUPPLEMENTARY LEVERAGE RATIO RULE]'' and adding ``12 CFR 
3.10(c)(4)(ii)(E)(1) through (3)'' in its place wherever it appears.
0
g. Removing ``[INSERT PART]'' and adding ``50'' in its place wherever 
it appears.

Subpart N [Removed and Reserved]

0
10. Remove and reserve subpart N.

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the common preamble, part 249 of 
chapter II of title 12 of the Code of Federal Regulations is amended to 
add the text of the common rule as set forth at the end of the 
SUPPLEMENTARY INFORMATION section and is further amended as follows:

PART 249--LIQUIDITY RISK MEASUREMENT, STANDARDS, AND MONITORING 
(REGULATION WW)

0
11. The authority citation for part 249 continues to read as follows:

    Authority:  12 U.S.C. 248(a), 321-338a, 481-486, 1467a(g)(1), 
1818, 1828, 1831p-1, 1831o-1, 1844(b), 5365, 5366, 5368.

0
12. Revise the heading for part 249 as set forth above.
0
13. Amend Sec.  249.1 by:
0
a. Revising paragraphs (a) and (b)(1);
0
b. Redesignating paragraphs (b)(3) through (5) as paragraphs (b)(4) 
through (6), respectively, and adding paragraph (b)(3);
    The additions and revisions read as follows:


Sec.  249.1  Purpose and applicability.

    (a) Purpose. This part establishes a minimum liquidity standard and 
a minimum stable funding standard for certain Board-regulated 
institutions on a consolidated basis, as set forth herein.
    (b) Applicability. (1) A Board-regulated institution is subject to 
the minimum liquidity standard and the minimum stable funding standard, 
and other requirements of this part if:
    (i) It has total consolidated assets equal to $250 billion or more, 
as reported on the most recent year end (as applicable):
    (A) Consolidated Financial Statements for Holding Companies 
reporting form (FR Y-9C), or, if the Board-regulated institution is not 
required to report on the FR Y-9C, its estimated total consolidated 
assets as of the most recent year end, calculated in accordance with 
the instructions to the FR Y-9C; or
    (B) Consolidated Report of Condition and Income (Call Report);
    (ii) It has total consolidated on-balance sheet foreign exposure at 
the most recent year end equal to $10 billion or more (where total on-
balance sheet foreign exposure equals total cross-border claims less 
claims with a head office or guarantor located in another country plus 
redistributed guaranteed amounts to the country of

[[Page 35178]]

the head office or guarantor plus local country claims on local 
residents plus revaluation gains on foreign exchange and derivative 
products, calculated in accordance with the Federal Financial 
Institutions Examination Council (FFIEC) 009 Country Exposure Report);
    (iii) It is a depository institution that is a consolidated 
subsidiary of a company described in paragraphs (b)(1)(i) or (ii) of 
this section and has total consolidated assets equal to $10 billion or 
more, as reported on the most recent year-end Consolidated Report of 
Condition and Income;
    (iv) It is a covered nonbank company;
    (v) It is a covered depository institution holding company that 
meets the criteria in section 249.60(a) or section 249.120(a) but does 
not meet the criteria in paragraphs (b)(1)(i) or (ii) of this section, 
and is subject to complying with the requirements of this part in 
accordance with subpart G or M of this part, respectively; or
    (vi) The Board has determined that application of this part is 
appropriate in light of the Board-regulated institution's asset size, 
level of complexity, risk profile, scope of operations, affiliation 
with foreign or domestic covered entities, or risk to the financial 
system.
* * * * *
    (3)(i) A Board-regulated institution that becomes subject to the 
minimum stable funding standard and other requirements of subparts K 
through N of this part under paragraphs (b)(1)(i) through (iii) of this 
section after the effective date must comply with the requirements of 
subparts K through N of this part beginning on April 1 of the year in 
which the Board-regulated institution becomes subject to the minimum 
stable funding standard and the requirements of subparts K through N of 
this part; and
    (ii) A Board-regulated institution that becomes subject to the 
minimum stable funding standard and other requirements of subparts K 
through N of this part under paragraph (b)(1)(iv) of this section after 
the effective date must comply with the requirements of subparts K 
through N of this part on the date specified by the Board.
* * * * *
0
14. Amend Sec.  249.2, by redesignating paragraph (b) as paragraph (c), 
adding new paragraph (b), and revising newly-redesignated paragraph (c) 
to read as follows:


Sec.  249.2  Reservation of authority.

* * * * *
    (b) The Board may require a Board-regulated institution to hold an 
amount of available stable funding (ASF) greater than otherwise 
required under this part, or to take any other measure to improve the 
Board-regulated institution's stable funding, if the Board determines 
that the Board-regulated institution's stable funding requirements as 
calculated under this part are not commensurate with the Board-
regulated institution's funding risks. In making determinations under 
this section, the Board will apply notice and response procedures as 
set forth in 12 CFR 263.202.
    (c) Nothing in this part limits the authority of the Board under 
any other provision of law or regulation to take supervisory or 
enforcement action, including action to address unsafe or unsound 
practices or conditions, deficient liquidity levels, deficient stable 
funding levels, or violations of law.
0
15. Amend Sec.  249.3 by:
0
a. Revising the definition for ``Calculation date'';
0
b. Adding the definition for ``Carrying value'';
0
c. Revising the definitions for ``Collateralized deposit'', 
``Committed'', and ``Covered nonbank company'';
0
d. Adding the definitions for ``Encumbered'', ``NSFR liability'', and 
``NSFR regulatory capital element'';
0
e. Revising the definition for ``Operational Deposit'';
0
f. Adding the definition for ``QMNA netting set'';
0
g. Revising the definitions for ``Secured funding transaction'' and 
``Secured lending transaction'';
0
h. Adding the definition for ``Unconditionally cancelable'';
0
i. Revising the definition for ``Unsecured wholesale funding''; and
0
j. Adding the definition for ``Unsecured wholesale lending''.
    The additions and revisions read in alphabetical order as follows:


Sec.  249.3  Definitions.

* * * * *
    Calculation date means, for subparts B through J of this part, any 
date on which a Board-regulated institution calculates its liquidity 
coverage ratio under Sec.  249.10, and for subparts K through N of this 
part, any date on which a Board-regulated institution calculates its 
net stable funding ratio under Sec.  249.100.
    Carrying value means, with respect to an asset, NSFR regulatory 
capital element, or NSFR liability, the value on the balance sheet of 
the Board-regulated institution, each as determined in accordance with 
GAAP.
* * * * *
    Collateralized deposit means:
    (1) A deposit of a public sector entity held at the Board-regulated 
institution that is required to be secured under applicable law by a 
lien on assets owned by the Board-regulated institution and that gives 
the depositor, as holder of the lien, priority over the assets in the 
event the Board-regulated institution enters into receivership, 
bankruptcy, insolvency, liquidation, resolution, or similar proceeding;
    (2) A deposit of a fiduciary account awaiting investment or 
distribution held at the Board-regulated institution for which the 
Board-regulated institution is a fiduciary and is required under 12 CFR 
9.10(b) (national banks), 12 CFR 150.300 through 150.320 (Federal 
savings associations), or applicable state law (state member and 
nonmember banks, and state savings associations) to set aside assets 
owned by the Board-regulated institution as security, which gives the 
depositor priority over the assets in the event the Board-regulated 
institution enters into receivership, bankruptcy, insolvency, 
liquidation, resolution, or similar proceeding; or
    (3) A deposit of a fiduciary account awaiting investment or 
distribution held at the Board-regulated institution for which the 
Board-regulated institution's affiliated insured depository institution 
is a fiduciary and where the Board-regulated institution under 12 CFR 
9.10(c) (national banks) or 12 CFR 150.310 (Federal savings 
associations) has set aside assets owned by the Board-regulated 
institution as security, which gives the depositor priority over the 
assets in the event the Board-regulated institution enters into 
receivership, bankruptcy, insolvency, liquidation, resolution, or 
similar proceeding.
    Committed means, with respect to a credit or liquidity facility, 
that under the terms of the facility, it is not unconditionally 
cancelable.
* * * * *
    Covered nonbank company means a designated company that the Board 
of Governors of the Federal Reserve System has required by separate 
rule or order to comply with the requirements of 12 CFR part 249.
* * * * *
    Encumbered means, with respect to an asset, that the asset:
    (1) Is subject to legal, regulatory, contractual, or other 
restriction on the ability of the Board-regulated institution to 
monetize the asset; or
    (2) Is pledged, explicitly or implicitly, to secure or to provide 
credit enhancement to any transaction, not including when the asset is 
pledged to a central bank or a U.S. government-sponsored enterprise 
where:
    (i) Potential credit secured by the asset is not currently extended 
to the

[[Page 35179]]

Board-regulated institution or its consolidated subsidiaries; and
    (ii) The pledged asset is not required to support access to the 
payment services of a central bank.
* * * * *
    NSFR liability means any liability or equity reported on a Board-
regulated institution's balance sheet that is not an NSFR regulatory 
capital element.
    NSFR regulatory capital element means any capital element included 
in a Board-regulated institution's common equity tier 1 capital, 
additional tier 1 capital, and tier 2 capital, in each case as defined 
in Sec.  217.20 of Regulation Q (12 CFR part 217), prior to application 
of capital adjustments or deductions as set forth in Sec.  217.22 of 
Regulation Q (12 CFR part 217), excluding any debt or equity instrument 
that does not meet the criteria for additional tier 1 or tier 2 capital 
instruments in Sec.  217.22 of Regulation Q (12 CFR part 217) and is 
being phased out of tier 1 capital or tier 2 capital pursuant to 
subpart G of Regulation Q (12 CFR part 217).
    Operational deposit means short-term unsecured wholesale funding 
that is a deposit, unsecured wholesale lending that is a deposit, or a 
collateralized deposit, in each case that meets the requirements of 
Sec.  249.4(b) with respect to that deposit and is necessary for the 
provision of operational services as an independent third-party 
intermediary, agent, or administrator to the wholesale customer or 
counterparty providing the deposit.
* * * * *
    QMNA netting set means a group of derivative transactions with a 
single counterparty that is subject to a qualifying master netting 
agreement and is netted under the qualifying master netting agreement.
* * * * *
    Secured funding transaction means any funding transaction that is 
subject to a legally binding agreement that gives rise to a cash 
obligation of the Board-regulated institution to a wholesale customer 
or counterparty that is secured under applicable law by a lien on 
securities or loans provided by the Board-regulated institution, which 
gives the wholesale customer or counterparty, as holder of the lien, 
priority over the securities or loans in the event the Board-regulated 
institution enters into receivership, bankruptcy, insolvency, 
liquidation, resolution, or similar proceeding. Secured funding 
transactions include repurchase transactions, securities lending 
transactions, other secured loans, and borrowings from a Federal 
Reserve Bank. Secured funding transactions do not include securities.
    Secured lending transaction means any lending transaction that is 
subject to a legally binding agreement that gives rise to a cash 
obligation of a wholesale customer or counterparty to the Board-
regulated institution that is secured under applicable law by a lien on 
securities or loans provided by the wholesale customer or counterparty, 
which gives the Board-regulated institution, as holder of the lien, 
priority over the securities or loans in the event the counterparty 
enters into receivership, bankruptcy, insolvency, liquidation, 
resolution, or similar proceeding. Secured lending transactions include 
reverse repurchase transactions and securities borrowing transactions. 
Secured lending transactions do not include securities.
* * * * *
    Unconditionally cancelable means, with respect to a credit or 
liquidity facility, that a Board-regulated institution may, at any 
time, with or without cause, refuse to extend credit under the facility 
(to the extent permitted under applicable law).
    Unsecured wholesale funding means a liability or general obligation 
of the Board-regulated institution to a wholesale customer or 
counterparty that is not a secured funding transaction. Unsecured 
wholesale funding includes wholesale deposits.
    Unsecured wholesale lending means a liability or general obligation 
of a wholesale customer or counterparty to the Board-regulated 
institution that is not a secured lending transaction or a security.
* * * * *
0
16. Amend Sec.  249.22, by revising paragraph (b)(1) to read as 
follows:


Sec.  249.22  Requirements for eligible high-quality liquid assets.

* * * * *
    (b) * * *
    (1) The assets are not encumbered.
* * * * *
0
17. Amend Sec.  249.30, by revising paragraph (b)(3) to read as 
follows:


Sec.  249.30  Total net cash outflow amount.

    (b) * * *
    (3) Other than the transactions identified in Sec.  249.32(h)(2), 
(h)(5), or (j) or Sec.  249.33(d) or (f), the maturity of which is 
determined under Sec.  249.31(a), transactions that have an open 
maturity are not included in the calculation of the maturity mismatch 
add-on.
0
18. Amend Sec.  249.31, by revising paragraphs (a)(1), (a)(2), and 
(a)(4) to read as follows:


Sec.  249.31  Determining maturity.

    (a) * * *
    (1) With respect to an instrument or transaction subject to Sec.  
249.32, on the earliest possible contractual maturity date or the 
earliest possible date the transaction could occur, taking into account 
any option that could accelerate the maturity date or the date of the 
transaction, except that when considering the earliest possible 
contractual maturity date or the earliest possible date the transaction 
could occur, the Board-regulated institution should exclude any 
contingent options that are triggered only by regulatory actions or 
changes in law or regulation, as follows:
* * * * *
    (2) With respect to an instrument or transaction subject to Sec.  
249.33, on the latest possible contractual maturity date or the latest 
possible date the transaction could occur, taking into account any 
option that could extend the maturity date or the date of the 
transaction, except that when considering the latest possible 
contractual maturity date or the latest possible date the transaction 
could occur, the Board-regulated institution may exclude any contingent 
options that are triggered only by regulatory actions or changes in law 
or regulation, as follows:
* * * * *
    (4) With respect to a transaction that has an open maturity, is not 
an operational deposit, and is subject to the provisions of Sec.  
249.32(h)(2), (h)(5), (j), or (k) or Sec.  249.33(d) or (f), the 
maturity date is the first calendar day after the calculation date. Any 
other transaction that has an open maturity and is subject to the 
provisions of Sec.  249.32 shall be considered to mature within 30 
calendar days of the calculation date.
* * * * *

Subparts H, I, J, K, and L, M, and N [Added]

0
19. Amend part 249 by adding subparts H, I, J, K, L, M, and N as set 
forth at the end of the common preamble.

Subparts K, L, and N [Amended]

0
20. Amend subparts K, L, and N of part 249 by:
0
a. Removing ``[AGENCY]'' and adding ``Board'' in its place wherever it 
appears.
0
b. Removing ``[AGENCY CAPITAL REGULATION]'' and adding ``Regulation Q 
(12 CFR part 217)'' in its place wherever it appears.
0
c. Removing ``[Sec.  __.10(c)(4)(ii)(C)(1) through (7) of the AGENCY

[[Page 35180]]

SUPPLEMENTARY LEVERAGE RATIO RULE]'' and adding ``12 CFR 
217.10(c)(4)(ii)(C)(1) through (7)'' in its place wherever it appears.
0
d. Removing ``[Sec.  __.10(c)(4)(ii)(E)(1) through (3) of the AGENCY 
SUPPLEMENTARY LEVERAGE RATIO RULE]'' and adding ``12 CFR 
217.10(c)(4)(ii)(E)(1) through (3)'' in its place wherever it appears
0
e. Removing ``[BANK]'' and adding ``Board-regulated institution'' in 
its place wherever it appears.
0
f. Removing ``[BANK]'s'' and adding ``Board-regulated institution's'' 
in its place wherever it appears.
0
21. Revise subpart M of part 249 to read as follows:
Subpart M--Net stable funding ratio for certain depository institution 
holding companies
Sec.
249.120 Applicability.
249.121 Net stable funding ratio requirement.

Subpart M--Net stable funding ratio for certain depository 
institution holding companies


Sec.  249.120  Applicability.

    (a) Scope. This subpart applies to a covered depository institution 
holding company domiciled in the United States that has total 
consolidated assets equal to $50 billion or more, based on the average 
of the covered depository institution holding company's total 
consolidated assets in the four most recent quarters as reported on the 
FR Y-9C (or, if a savings and loan holding company is not required to 
report on the FR Y-9C, based on the average of its estimated total 
consolidated assets for the most recent four quarters, calculated in 
accordance with the instructions to the FR Y-9C) and does not meet the 
applicability criteria set forth in Sec.  249.1(b).
    (b) Applicable provisions. Except as otherwise provided in this 
subpart, the provisions of subparts A, K, L, and N of this part apply 
to covered depository institution holding companies that are subject to 
this subpart.
    (c) Applicability. A covered depository institution holding company 
that meets the threshold for applicability of this subpart under 
paragraph (a) of this section after the effective date must comply with 
the requirements of this subpart beginning one year after the date it 
meets the threshold set forth in paragraph (a) of this section.


Sec.  249.121  Net stable funding ratio requirement.

    (a) Calculation of the net stable funding ratio. A covered 
depository institution holding company subject to this subpart must 
calculate and maintain a net stable funding ratio in accordance with 
Sec.  249.100 and this subpart.
    (b) Available stable funding amount. A covered depository 
institution holding company subject to this subpart must calculate its 
ASF amount in accordance with subpart K of this part.
    (c) Required stable funding amount. A covered depository 
institution holding company subject to this subpart must calculate its 
RSF amount in accordance with subpart K of this part, provided, 
however, that the RSF amount of a covered depository institution 
holding company subject to this subpart equals 70 percent of the RSF 
amount calculated in accordance with subpart K of this part.

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

    For the reasons set forth in the common preamble, the Federal 
Deposit Insurance Corporation proposes to amend chapter III of title 12 
of the Code of Federal Regulations to add the text of the common rule 
as set forth at the end of the SUPPLEMENTARY INFORMATION section and is 
further amended as follows:

PART 329--LIQUIDITY RISK MEASUREMENT STANDARDS

0
22. The authority citation for part 329 continues to read as follows:

    Authority: 12 U.S.C. 1815, 1816, 1818, 1819, 1828, 1831p-1, 
5412.

0
23. Amend Sec.  329.1 by:
0
a. Revising paragraphs (a) and (b)(1);
0
b. Redesignating paragraphs (b)(3) through (5) as paragraphs (b)(4) 
through (6), respectively, and adding new paragraph (b)(3);
    The additions and revisions read as follows:


Sec.  329.1  Purpose and applicability.

    (a) Purpose. This part establishes a minimum liquidity standard and 
a minimum stable funding standard for certain FDIC-supervised 
institutions on a consolidated basis, as set forth herein.
    (b) Applicability. (1) An FDIC-supervised institution is subject to 
the minimum liquidity standard and the minimum stable funding standard, 
and other requirements of this part if:
    (i) The FDIC-supervised institution has total consolidated assets 
equal to $250 billion or more, as reported on the most recent year-end 
Consolidated Report of Condition and Income;
    (ii) The FDIC-supervised institution has total consolidated on-
balance sheet foreign exposure at the most recent year end equal to $10 
billion or more (where total on-balance sheet foreign exposure equals 
total cross-border claims less claims with a head office or guarantor 
located in another country plus redistributed guaranteed amounts to the 
country of the head office or guarantor plus local country claims on 
local residents plus revaluation gains on foreign exchange and 
derivative products, calculated in accordance with the Federal 
Financial Institutions Examination Council (FFIEC) 009 Country Exposure 
Report);
    (iii) The FDIC-supervised institution is a depository institution 
that has total consolidated assets equal to $10 billion or more, as 
reported on the most recent year-end Consolidated Report of Condition 
and Income and is a consolidated subsidiary of one of the following:
    (A) A covered depository institution holding company that has total 
assets equal to $250 billion or more, as reported on the most recent 
year-end Consolidated Financial Statements for Holding Companies 
reporting form (FR Y-9C), or, if the covered depository institution 
holding company is not required to report on the FR Y-9C, its estimated 
total consolidated assets as of the most recent year-end, calculated in 
accordance with the instructions to the FR Y-9C;
    (B) A depository institution that has total consolidated assets 
equal to $250 billion or more, as reported on the most recent year-end 
Consolidated Report of Condition and Income;
    (C) A covered depository institution holding company or depository 
institution that has total consolidated on-balance sheet foreign 
exposure at the most recent year-end equal to $10 billion or more 
(where total on-balance sheet foreign exposure equals total cross-
border claims less claims with a head office or guarantor located in 
another country plus redistributed guaranteed amounts to the country of 
the head office or guarantor plus local country claims on local 
residents plus revaluation gains on foreign exchange and derivative 
transaction products, calculated in accordance with Federal Financial 
Institutions Examination Council (FFIEC) 009 Country Exposure Report); 
or
    (D) A covered nonbank company; or
    (iv) The FDIC has determined that application of this part is 
appropriate in light of the FDIC-supervised institution's asset size, 
level of complexity, risk profile, scope of operations, affiliation 
with foreign or

[[Page 35181]]

domestic covered entities, or risk to the financial system.
* * * * *
    (3)(i) An FDIC-supervised institution that becomes subject to the 
minimum stable funding standard and other requirements of subparts K 
through N of this part under paragraphs (b)(1)(i) through (iii) of this 
section after the effective date must comply with the requirements of 
subparts K through N of this part beginning on April 1 of the year in 
which the FDIC-supervised institution becomes subject to the minimum 
stable funding standard and the requirements of subparts K through N of 
this part; and
    (ii) An FDIC-supervised institution that becomes subject to the 
minimum stable funding standard and other requirements of subparts K 
through N of this part under paragraph (b)(1)(iv) of this section after 
the effective date must comply with the requirements of subparts K 
through N of this part on the date specified by the FDIC.
* * * * *
0
24. Amend Sec.  329.2, by redesignating paragraph (b) as paragraph (c), 
adding new paragraph (b), and revising newly-redesignated paragraph (c) 
to read as follows:


Sec.  329.2  Reservation of authority.

* * * * *
    (b) The FDIC may require an FDIC-supervised institution to hold an 
amount of available stable funding (ASF) greater than otherwise 
required under this part, or to take any other measure to improve the 
FDIC-supervised institution's stable funding, if the FDIC determines 
that the FDIC-supervised institution's stable funding requirements as 
calculated under this part are not commensurate with the FDIC-
supervised institution's funding risks. In making determinations under 
this section, the FDIC will apply notice and response procedures as set 
forth in 12 CFR 324.5.
    (c) Nothing in this part limits the authority of the FDIC under any 
other provision of law or regulation to take supervisory or enforcement 
action, including action to address unsafe or unsound practices or 
conditions, deficient liquidity levels, deficient stable funding 
levels, or violations of law.
0
25. Amend Sec.  329.3 by:
0
a. Revising the definition for ``Calculation date'';
0
b. Adding the definition for ``Carrying value'';
0
c. Revising the definitions for ``Collateralized deposit'', 
``Committed'', and ``Covered nonbank company'';
0
d. Adding the definitions for ``Encumbered'', ``NSFR liability'', and 
``NSFR regulatory capital'';
0
e. Revising the definition for ``Operational Deposit'';
0
f. Adding the definition for ``QMNA netting set'';
0
g. Revising the definitions for ``Secured funding transaction'', and 
``Secured lending transaction'';
0
h. Adding the definition for ``Unconditionally cancelable'';
0
i. Revising the definitions for ``Unsecured wholesale funding''; and
0
j. Adding the definition for ``Unsecured wholesale lending''.
    The additions and revisions read as follows:


Sec.  329.3  Definitions.

* * * * *
    Calculation date means, for subparts B through J of this part, any 
date on which an FDIC-supervised institution calculates its liquidity 
coverage ratio under Sec.  329.10, and for subparts K through N of this 
part, any date on which an FDIC-supervised institution calculates its 
net stable funding ratio under Sec.  329.100.
    Carrying value means, with respect to an asset, NSFR regulatory 
capital element, or NSFR liability, the value on the balance sheet of 
the FDIC-supervised institution, each as determined in accordance with 
GAAP.
* * * * *
    Collateralized deposit means:
    (1) A deposit of a public sector entity held at the FDIC-supervised 
institution that is required to be secured under applicable law by a 
lien on assets owned by the FDIC-supervised institution and that gives 
the depositor, as holder of the lien, priority over the assets in the 
event the FDIC-supervised institution enters into receivership, 
bankruptcy, insolvency, liquidation, resolution, or similar proceeding;
    (2) A deposit of a fiduciary account awaiting investment or 
distribution held at the FDIC-supervised institution for which the 
FDIC-supervised institution is a fiduciary and is required under 12 CFR 
9.10(b) (national banks), 12 CFR 150.300 through 150.320 (Federal 
savings associations), or applicable state law (state member and 
nonmember banks, and state savings associations) to set aside assets 
owned by the FDIC-supervised institution as security, which gives the 
depositor priority over the assets in the event the FDIC-supervised 
institution enters into receivership, bankruptcy, insolvency, 
liquidation, resolution, or similar proceeding; or
    (3) A deposit of a fiduciary account awaiting investment or 
distribution held at the FDIC-supervised institution for which the 
FDIC-supervised institution's affiliated insured depository institution 
is a fiduciary and where the FDIC-supervised institution under 12 CFR 
9.10(c) (national banks) or 12 CFR 150.310 (Federal savings 
associations) has set aside assets owned by the FDIC-supervised 
institution as security, which gives the depositor priority over the 
assets in the event the FDIC-supervised institution enters into 
receivership, bankruptcy, insolvency, liquidation, resolution, or 
similar proceeding.
    Committed means, with respect to a credit or liquidity facility, 
that under the terms of the facility, it is not unconditionally 
cancelable.
* * * * *
    Covered nonbank company means a designated company that the Board 
of Governors of the Federal Reserve System has required by separate 
rule or order to comply with the requirements of 12 CFR part 249.
* * * * *
    Encumbered means, with respect to an asset, that the asset:
    (1) Is subject to legal, regulatory, contractual, or other 
restriction on the ability of the FDIC-supervised institution to 
monetize the asset; or
    (2) Is pledged, explicitly or implicitly, to secure or to provide 
credit enhancement to any transaction, not including when the asset is 
pledged to a central bank or a U.S. government-sponsored enterprise 
where:
    (i) Potential credit secured by the asset is not currently extended 
to the FDIC-supervised institution or its consolidated subsidiaries; 
and
    (ii) The pledged asset is not required to support access to the 
payment services of a central bank.
* * * * *
    NSFR liability means any liability or equity reported on an FDIC-
supervised institution's balance sheet that is not an NSFR regulatory 
capital element.
    NSFR regulatory capital element means any capital element included 
in an FDIC-supervised institution's common equity tier 1 capital, 
additional tier 1 capital, and tier 2 capital, in each case as defined 
in 12 CFR 324.20, prior to application of capital adjustments or 
deductions as set forth in 12 CFR 324.22, excluding any debt or equity 
instrument that does not meet the criteria for additional tier 1 or 
tier 2 capital instruments in 12 CFR 324.22 and is being phased out of 
tier 1 capital or tier 2 capital pursuant to subpart G of 12 CFR 324.
    Operational deposit means short-term unsecured wholesale funding 
that is a

[[Page 35182]]

deposit, unsecured wholesale lending that is a deposit, or a 
collateralized deposit, in each case that meets the requirements of 
Sec.  329.4(b) with respect to that deposit and is necessary for the 
provision of operational services as an independent third-party 
intermediary, agent, or administrator to the wholesale customer or 
counterparty providing the deposit.
* * * * *
    QMNA netting set means a group of derivative transactions with a 
single counterparty that is subject to a qualifying master netting 
agreement and is netted under the qualifying master netting agreement.
* * * * *
    Secured funding transaction means any funding transaction that is 
subject to a legally binding agreement that gives rise to a cash 
obligation of the FDIC-supervised institution to a wholesale customer 
or counterparty that is secured under applicable law by a lien on 
securities or loans provided by the FDIC-supervised institution, which 
gives the wholesale customer or counterparty, as holder of the lien, 
priority over the securities or loans in the event the FDIC-supervised 
institution enters into receivership, bankruptcy, insolvency, 
liquidation, resolution, or similar proceeding. Secured funding 
transactions include repurchase transactions, securities lending 
transactions, other secured loans, and borrowings from a Federal 
Reserve Bank. Secured funding transactions do not include securities.
    Secured lending transaction means any lending transaction that is 
subject to a legally binding agreement that gives rise to a cash 
obligation of a wholesale customer or counterparty to the FDIC-
supervised institution that is secured under applicable law by a lien 
on securities or loans provided by the wholesale customer or 
counterparty, which gives the FDIC-supervised institution, as holder of 
the lien, priority over the securities or loans in the event the 
counterparty enters into receivership, bankruptcy, insolvency, 
liquidation, resolution, or similar proceeding. Secured lending 
transactions include reverse repurchase transactions and securities 
borrowing transactions. Secured lending transactions do not include 
securities.
* * * * *
    Unconditionally cancelable means, with respect to a credit or 
liquidity facility, that an FDIC-supervised institution may, at any 
time, with or without cause, refuse to extend credit under the facility 
(to the extent permitted under applicable law).
    Unsecured wholesale funding means a liability or general obligation 
of the FDIC-supervised institution to a wholesale customer or 
counterparty that is not a secured funding transaction. Unsecured 
wholesale funding includes wholesale deposits.
    Unsecured wholesale lending means a liability or general obligation 
of a wholesale customer or counterparty to the FDIC-supervised 
institution that is not a secured lending transaction or a security.
* * * * *
0
26. Amend Sec.  329.22, by revising paragraph (b)(1) to read as 
follows:


Sec.  329.22  Requirements for eligible high-quality liquid assets.

* * * * *
    (b) * * *
    (1) The assets are not encumbered.
* * * * *
0
27. Amend Sec.  329.30, by revising paragraph (b)(3) to read as 
follows:


Sec.  329.30  Total net cash outflow amount.

* * * * *
    (b) * * *
    (3) Other than the transactions identified in Sec.  329.32(h)(2), 
(h)(5), or (j) or Sec.  329.33(d) or (f), the maturity of which is 
determined under Sec.  329.31(a), transactions that have an open 
maturity are not included in the calculation of the maturity mismatch 
add-on.
0
28. Amend Sec.  329.31, by revising paragraphs (a)(1), (a)(2), and 
(a)(4) to read as follows:


Sec.  329.31  Determining maturity.

    (a) * * *
    (1) With respect to an instrument or transaction subject to Sec.  
329.32, on the earliest possible contractual maturity date or the 
earliest possible date the transaction could occur, taking into account 
any option that could accelerate the maturity date or the date of the 
transaction, except that when considering the earliest possible 
contractual maturity date or the earliest possible date the transaction 
could occur, the FDIC-supervised institution should exclude any 
contingent options that are triggered only by regulatory actions or 
changes in law or regulation, as follows:
* * * * *
    (2) With respect to an instrument or transaction subject to Sec.  
329.33, on the latest possible contractual maturity date or the latest 
possible date the transaction could occur, taking into account any 
option that could extend the maturity date or the date of the 
transaction, except that when considering the latest possible 
contractual maturity date or the latest possible date the transaction 
could occur, the FDIC-supervised institution may exclude any contingent 
options that are triggered only by regulatory actions or changes in law 
or regulation, as follows:
* * * * *
    (4) With respect to a transaction that has an open maturity, is not 
an operational deposit, and is subject to the provisions of Sec.  
329.32(h)(2), (h)(5), (j), or (k) or Sec.  329.33(d) or (f), the 
maturity date is the first calendar day after the calculation date. Any 
other transaction that has an open maturity and is subject to the 
provisions of Sec.  329.32 shall be considered to mature within 30 
calendar days of the calculation date.
* * * * *

Subpart G [Added and Reserved]

0
29. Add reserve subpart G.

Subparts H, I, J, K, L, M, and N [Added]

0
30. Part 329 is amended by adding subparts H, I, J, K, L, M, and N as 
set forth at the end of the common preamble.

Subparts K and L [Amended]

0
31. Subparts K and L to part 329 are amended by:
0
a. Removing ``[AGENCY]'' and adding ``FDIC'' in its place wherever it 
appears.
0
b. Removing ``[AGENCY CAPITAL REGULATION]'' and adding ``12 CFR part 
324'' in its place wherever it appears.
0
c. Removing ``A [BANK]'' and adding ``An FDIC-supervised institution'' 
in its place wherever it appears.
0
d. Removing ``a [BANK]'' and add ``an FDIC-supervised institution'' in 
its place wherever it appears.
0
e. Removing ``[BANK]'' and adding ``FDIC-supervised institution'' in 
its place wherever it appears.
0
f. Removing ``[Sec.  __.10(c)(4)(ii)(C)(1) through (7) of the AGENCY 
SUPPLEMENTARY LEVERAGE RATIO RULE]'' and adding ``12 CFR 
324.10(c)(4)(ii)(C)(1) through (7)'' in its place wherever it appears.
0
g. Removing ``[Sec.  __.10(c)(4)(ii)(E)(1) through (3) of the AGENCY 
SUPPLEMENTARY LEVERAGE RATIO RULE]'' and adding ``12 CFR 
324.10(c)(4)(ii)(E)(1) through (3)'' in its place wherever it appears.
0
h. Removing ``[INSERT PART]'' and adding ``329'' in its place wherever 
it appears.

Subpart N [Removed and Reserved]

0
32. Remove and reserve subpart N.


[[Page 35183]]


    Dated: May 13, 2016.
Thomas J. Curry,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, May 3, 2016.
Robert deV. Frierson,
Secretary of the Board.
    Dated at Washington, DC, this 26th day of April, 2016.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2016-11505 Filed 5-31-16; 8:45 am]
 BILLING CODE P