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Home Archive for category "Liquidity"
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U.S. Basel III Liquidity Coverage Ratio (LCR) Final Rule: Visual Memorandum

The U.S. banking agencies have issued a final rule to implement the Basel III liquidity coverage ratio (LCR) in the United States. The LCR requires large banking organizations to maintain a minimum amount of liquid assets to withstand a 30-day standardized stress scenario. The U.S. LCR final rule is more stringent than the Basel Committee’s LCR framework in several significant respects. In addition, the final rule makes a number of key changes to the proposed rule.

Davis Polk’s visual memorandum uses diagrams, flowcharts, timelines, examples and comparison tables to illustrate key aspects of the U.S.…  Read More

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Blackline of U.S. Liquidity Coverage Ratio Final Rule

Today, the U.S. banking agencies issued a final rule to implement the Basel III liquidity coverage ratio (LCR). We have prepared a blackline that compares the text of the final rule against the proposed rule that was issued in 2013.

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Basel Committee Chair Discusses Liquidity Risk Management

The Chairman of the Basel Committee, Stefan Ingves, delivered a speech entitled Liquidity risk management – the LCR and beyond. In addition to discussing the Basel III liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), Chairman Ingves reminded banks that “the LCR and NSFR are not meant to be the first line of defence against banks’ liquidity problems.” He observed that “the LCR and NSFR are relatively simple quantitative measures that cannot hope to fully capture the many nuances of liquidity risk that a bank may face” and that “[b]anks must develop a range of quantitative and qualitative controls for themselves to ensure that they are prepared for the volatility in their cash flows that is inherent in the complexity of banks’ business models.” In this context, Chairman Ingves discussed the Basel Committee’s Principles for sound liquidity risk management and supervision and concluded by stating that:

“The first line of defence against the impact of future liquidity shocks on the banking system is stronger risk management by banks themselves. Read More

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Overview of Basel Framework Implementation Progress (as of Q1 2014)

The Basel Committee has published the following table on the implementation progress of the Basel capital and liquidity framework for each member jurisdiction as of Q1 2014.  The Basel Committee has published implementation progress reports on a semi-annual basis since October 2011.

In addition, the Basel Committee report contains a schedule of future Regulatory Consistency Assessment Programme (RCAP) assessments.  Through RCAP, the Basel Committee monitors the adoption of regulations by its members, assesses their consistency with the Basel  framework and analyzes the quality of intended regulatory outcomes.…  Read More

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U.S. Intermediate Holding Company: Structuring and Regulatory Considerations for Foreign Banks – Visual Memorandum

Establishing a top-tier U.S. intermediate holding company (IHC) that complies with Dodd-Frank enhanced prudential standards involves complex structuring, regulatory, capital, liquidity, tax and corporate governance considerations as well as significant business, legal and operational analysis. We have prepared a visual memorandum (available here) that uses flowcharts, diagrams, comparison tables and timelines to explore key structuring and regulatory considerations for foreign banks that are required to establish an IHC.

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Dodd-Frank Enhanced Prudential Standards for Foreign Banks with Limited U.S. Footprints: Visual Memorandum

The Federal Reserve’s Dodd-Frank enhanced prudential standards (EPS) final rule adopts a tiered approach for applying EPS to foreign banks. Under the tiered approach, the most burdensome requirements will only apply to foreign banks with large U.S. operations, whereas fewer requirements will apply to foreign banks with limited U.S. footprints. We have prepared a visual memorandum focusing on the requirements that will apply to foreign banks with limited U.S. footprints, including the U.S. risk committee, internal liquidity stress testing, home country capital certification and home country capital stress testing requirements.…  Read More

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