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Capital Commitment Subscription Facilities and the Proposed Liquidity Coverage Ratio



by Kiel A. Bowen
Mayer Brown LLP - Charlotte Office

J. Paul Forrester
Mayer Brown LLP - Chicago Office

Carol A. Hitselberger
Mayer Brown LLP - Charlotte Office

Adam D. Kanter
Mayer Brown LLP - Washington Office

Michael C. Mascia
Mayer Brown LLP - New York Office

January 2, 2014

Previously published on December 20, 2013

On November 29, 2013, the Board of Governors of the Federal Reserve System (FRB), the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC, and collectively, the Agencies) published in the Federal Register a notice of proposed rule making (the Proposed Rule) to strengthen the liquidity positions of large financial institutions. The Proposed Rule creates for the first time a standardized liquidity requirement in the form of a minimum liquidity coverage ratio (LCR) and generally follows the liquidity ratio requirement as revised and adopted by the Basel Committee on Banking Supervision of the Bank of International Settlements (Basel LCR) earlier this year. The Proposed Rule’s LCR (US LCR) aims to require banking organizations with $250 billion or more in total assets and certain other large or systemically important banking or other institutions (Covered Banks) to hold sufficient high-quality liquid assets (HQLA) to meet the Covered Bank’s liquidity needs for a thirty (30) day stress scenario. As with many of the statutory and regulatory requirements emanating from the financial crisis, applying the requirements of the US LCR to capital commitment subscription credit facilities (each, a Facility) requires both seasoned familiarity with Facility structures and reasoned judgment as to the application. This Legal Update seeks to set out the applicable criteria and the appropriate classifications for Facilities with respect to the US LCR.


 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Author
 
Kiel A. Bowen
J. Paul Forrester
Carol A. Hitselberger
Adam D. Kanter
Michael C. Mascia
Practice Area
 
Banking Law
Bankruptcy
 
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