ABA Supports Rule Implementing S. 2155 Liquidity Provision

The American Bankers Association today wrote to the Federal Reserve, FDIC and OCC in support of an interim final rule the agencies issued recently implementing an ABA-advocated provision of S. 2155 that expands the pool of what counts as high-quality liquid assets under the Liquidity Coverage Ratio. The rule treats liquid, readily marketable and investment-grade municipal securities as HQLA for the purposes of the LCR, one of the Basel III liquidity measures.

“Banks are important investors in the municipal markets and understand their value. Encouraging investment in municipal securities will make funding for state and local entities more accessible and less expensive, while expanding the supply of HQLA,” the association said, adding that widening the list of HQLA-assets has benefits for both U.S. financial markets and bank customers.

ABA also commented on the LCR more broadly, noting that “existing LCR regulations do not sufficiently embrace the actual breadth and depth of liquidity in the U.S. economy.” The association called for additional revisions to the LCR rule to more accurately reflect U.S. market liquidity and bank liquidity risk.