• Capital Commitment Subscription Facilities and the Proposed Liquidity Coverage Ratio
  • January 2, 2014 | Authors: Kiel A. Bowen; J. Paul Forrester; Carol A. Hitselberger; Adam D. Kanter; Michael C. Mascia
  • Law Firms: Mayer Brown LLP - Charlotte Office ; Mayer Brown LLP - Chicago Office ; Mayer Brown LLP - Charlotte Office ; Mayer Brown LLP - Washington Office ; Mayer Brown LLP - New York Office
  • 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.